How important is the site selection process for a small business owner? Whether the business owns or leases its business facility, why does the small business lender (including lenders of the SBA government-guaranteed loan program) ask about it? We’ve all heard that the success of a business is “location, location, and location.” That’s why the lenders ask. The lender perceives that your choice for location will influence your ability to earn enough income to make the payments on your SBA loan.
Choosing the Location of Your Small Business
Different types of businesses require different types of locations. The challenge is finding the most cost-effective opportunity in the market in which your business must compete. Many retail businesses will need to pay the most for real estate expenditures, just because those are the locations where they will find their customers. On the other hand, a manufacturing business may compete well by locating on cheaper real estate closer to its low cost labor source. Its customers may require efficient delivery systems for the product they buy, instead of a more expensive and convenient location.
Often one of the biggest expenses on the profit-and-loss statement, which a small business lender must evaluate, are the business’ monthly lease or ownership expenses for their real estate. The best approach for addressing a lender’s evaluation of the business’ repayment ability is to be prepared with good answers for his inquiries. When he asks about lease expenses, or when you document the assumptions in your financial projections, be prepared to justify the cost of your business’ facility. Convince the lender, with data, research and facts, that your site selection was carefully orchestrated to cost-effectively compete in your market with your particular customers, suppliers, and service providers. Convince the lender with your thorough and effective business plan for managing your business. Small business and SBA lenders must document your loan file with all their investigation and analysis of the feasibility of your loan request and probability for repayment of the loan. Give the lender the ammunition to do so, and she or he will “show you the money!”
In conclusion, we are fortunate to live in an age of data, and there are many commercial real estate professionals whose credentials will match the real estate needs of different types of small businesses. Many industry trade associations and other industry professionals maintain comprehensive databases of useful location and demographic data to support your site selection process. Many government entities, such as SBA, SCORE and Small Business Development Centers, have research libraries and free advisers for small business professionals. Do your homework before approaching your small business lender. Show the lender your research, facts and figures. Let the lender know you have adequately addressed the issue of “location, location, location” in the site selection process for your small business. Remember that research that is good for the small business is also good for the small business lender!
Published November 2018