Due to economy, banks and early-stage investors have become more selective
Lexington, KY – As one might expect, given the past few years of financial crisis, bankers and investors are much more cautious about investing in or loaning money to start-up businesses. The bar to earn that cash has been raised quite a few notches.
That’s also true in central Kentucky, where one observer said only the cream of the crop is able to borrow money today.
“Those businesses that aren’t ‘sterling silver’ and haven’t met all [financial] requirements are either getting no financing or are getting less than they need. Both are damaging to a start-up or an existing business, because they’ll run out of capital before they become profitable,” explained Gordon Garrett, associate state director for the Kentucky Small Business Development Center.
The center, with 15 offices statewide, provides a variety of business services to help cultivate existing companies, nurture new ventures, foster job creation and increase business profitability.
Garrett explained why it has been tough to gain first- or second-stage money for new businesses. “The credit markets are very tight — the banks, basically,” he said. “Underwriting requirements that banks must follow are much higher than pre-recession — things like the amount of collateral available, the dollars the start-up business can put into the company and cash flow.”
One mistake fledgling businesses make is having an overly optimistic operator who underestimates the amount of money he or she will need to put into the business. That realization often comes as a shock.
The husband and wife team of Jesse and Sara Hesley own Town Branch Tree Experts, a one-year-old Lexington full-service tree care company. The pair was able to initially invest enough money in their business and also obtain a Small Business Administration (SBA) loan to help them along. Their own careful planning and some solid business advice from experts also made a difference.
“The Bluegrass Small Business Development Center in Lexington [Garrett’s organization] assisted us in getting all our ducks in a row, so to speak, so we’d be prepared before meeting with the bank. I felt very prepared for that process,” said Sara Hesley, co-founder and CEO of the high-end tree service.
Since the financing was going to work out, the biggest challenge, it turned out, was simply whether to take the plunge. Jesse Hesley, who has a University of Kentucky degree in natural resource conservation management, and Sara Hesley, who has a UK degree in plant and soil science, went for it.