In this episode of Money Talk With Tiff, Tiffany Grant sits down with Craig Calafati, an experienced small business lender. Craig brings over 30 years of experience in lending to small businesses, sharing invaluable advice on what successful business owners do and don't do.

This episode is packed with insights on the importance of networking with successful entrepreneurs, coming prepared to financial meetings, and understanding the intricacies of business lending.

Check out the full show notes: https://moneytalkwitht.com/podcast-show-notes/successful-small-business-loans/

Key Takeaways

Networking and Mentorship

• Surround yourself with successful entrepreneurs.
• Seek advice and learn from others who have been in similar situations.

Preparation for Lending

• Know exactly how much money you need and why.
• Be able to clearly articulate your business needs and repayment plan.

Business Plans and Financials

• Have a detailed business plan, whether you're starting a new business or running an existing one.
• Ensure your financial records are accurate and transparent.

Real Estate Considerations

• Consider leasing rather than buying property initially.
• Save your cash and park it for unexpected expenses rather than tying it up in real estate.

Lending No-Nos

• Avoid starting any projects or signing leases before loan approvals.
• Stay open to feedback and be prepared to adapt.

Tax Returns and Profitability

• Aim for profitability on paper when possible; tax returns are crucial for lending decisions.
• Engage a good accountant to maintain the integrity of your financial records.

Connect with Craig

EVP, Director of Lending at Arkansas Capital (CDFI)

Website: arcapital.com

Connect with Tiffany Grant

• Website: moneytalkwitht.com
• Social Media: @MoneyTalkWithT

If you enjoyed this episode, consider subscribing and leaving a review on your favorite podcast platform.

Thank you for listening, joining, and being a part of the Money Talk With Tiff podcast!

You know what it is?

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It's the Money Talk with Tiff podcast.

Hey, everyone.

I am so excited because I have Craig Califadi on the line, and Craig is an experienced business owner, and he is here to talk to us about what successful business owners do and don't do when it comes to their business.

So.

Hey, Craig, how are you?

I'm well.

How are you?

I'm doing great.

So I'm excited to have this conversation because just in our pre.

Conversation, we know, you know, we have a lot of things in common when it comes to our thought process about business ownership, but let's just dive right in.

First and foremost, one of the key things you talk about is having entrepreneurs that you spend time with and who you talk to on a regular basis that have successful businesses.

So let's talk a little bit about that.

How important are those connections?

Well, obviously, it's very important because those are your.

Those are the people that can give you advice and who've been there before.

One thing I do want to clarify is while I used to be a small business owner, I'm a lender now.

A small business lender.

That's what I specialize in.

And so the advice I'm giving is coming from somebody who speaks to a lot of business owners, and I've been doing it for over 30 years.

So I.

And that is one thing I strongly advise anyone who's going into business is find people in the.

In that business and befriend them and talk to them and find out the ups and downs.

Try to.

Try to, you know, fill those potholes before you get to them, and they can be a great asset.

Yes, absolutely.

And I know personally, I have experience.

I'm like, my tribe is so dope, because anytime I have questions, I just ran into an issue with my website, and I was trying to figure out what I needed to do, you know, with scheduling, different things or what have you.

And I reached out to one of my friends who already does it, and she's like, hey, Tiffany, did you think about doing it this way?

And I'm like, boom, that's exactly what I needed.

So I wholeheartedly believe in those connections.

Now, since you're.

You are a lender, what's another thing that small businesses, you know, may.

May come to you, and you're like, you need to work on this.

Well, you know, one thing that's really Surprising to me, and has been for years, is how many people show up and they have absolutely no idea how much money they need.

And they're coming to me as a lender and you know, I say, well, okay, what are we talking about?

What is it you need to move forward?

And they'll be like, well, how much can I get?

That's pretty much the last thing you want to say to a banker or any lender.

We want to know that you know exactly what it is you need, how much you need, when you're going to need it and how you're going to pay it back.

That's key to it.

And when you don't know those things, it kind of tells us that you got a lot more work to do.

And so if you want to build confidence with your lender, with your banker, show up, know, know your business, know exactly what you need, know why you need it when you need it.

That is so key.

So guys don't just go in like, well, how much can I get?

What can I get approved for?

Because it's like a red flag telling.

Me you really don't have a good grasp on what your business is doing and what it needs to get where you want it to be.

Gotcha.

So on that same vein, what are some things that you do look for?

You know, when a business comes in?

Like, are you looking at the financials?

What in the financials are you paying attention to?

Like, what are some key things we're looking at?

You know, depending on why they're coming to us.

I mean, sometimes they're coming to us as a startup and they want to begin a business.

If that's the case, then we look to your business plan.

And your business plan should not just be, hey, we're going to open up a dog washing service and be open Monday through Friday.

I mean, it's got to cover every aspect of that business and not only when you're going to operate, how much you're going to, you know, how much you're going to charge, what will be your hours of operation, what will it cost to open this, what will it cost to maintain it.

All those things should be in your business plan.

And we're looking to that business plan to know that you know, your business that you want to go into, if it is existing business.

Same thing.

You may not be presenting a business plan, but we're going to go through your financials, we're going to look at your business as a whole and make sure that, number one, you understand it and you Know what it is you need.

That's really the key is knowing your business.

And I keep coming back to that.

But you'd be amazed how many people, they, they just think it'd be fun to do, you know, to open a certain business.

Which again, brings us to that earlier point.

Talk to other people in that business.

They'll probably tell you it's not as fun as you think it's going to be.

It's a lot of work.

So I think that's very important.

Yes.

And honestly, you know, personally, that's how I feel with the logistics industry, because I was in it for a while and, you know, people come to me, they're like, oh, I want to start logist company.

You know, this, that.

And the other, I'm like, okay, let me give you the real.

Because you may not have a life, you know, once you start.

And so, yeah, going back to our first point, like, make sure you're reaching out to people that have been there, done that, or are doing that so you can have a more realistic view.

And the same thing, you know, with restaurant people that want to open restaurants, for instance, too, they're like, oh, I want to open a restaurant, but not really thinking about how much a restaurant entails.

Most restaurants don't make it past the first year, let alone five years.

And so I think having all of that information up front will help you make better business decisions now.

And I was in the restaurant business, and I can tell you, anytime somebody shows up in my office and says, oh, I think it'd be fun to open a restaurant, I throw them out because they obviously have no idea about the business.

It's a tough business.

And you, you've got to have some thick calluses and a lot of good friends that can advise you if you're going to go into it.

For sure, for sure.

Now, also, one thing that you mentioned was real estate.

So, like, the business owners that need, you know, maybe a storefront or let's say a restaurant.

Right.

What are some things that they should think about before getting into some real estate?

Well, one thing that has always amazed me, and you see it even more in the last five, six years, is how many people are starting a business that think they have to own their real estate that's part of their package is, well, we found this building and we want to spend $400,000 on the building.

Well, a couple thoughts on that.

Number one, you're tying up a lot of cash when you really don't need to.

And in the beginning, you hear People say cash is king.

It couldn't be truer.

With a startup business, there are always going to be expenses you didn't count on.

Right when you think everything's done, some kid's gonna go driving by your new store and wreck his bike and take out a picture window that's Gonna cost you $1,000 you didn't count on.

You need to hoard the cash in the beginning.

And tying up an extra 100, 200, $300,000 in a piece of real estate is not the best way to focus that cash.

You can lease.

You can.

If you think the business is going to be wildly successful and you want to, you always wanted to own your real estate, then do a three year lease and at the end of that three years, get an option to buy and then buy that building or buy another one.

That maybe might work better.

That's something else.

You might buy this building, get six months into business and realize this building does not work for what we thought it was going to, you know, do.

And now suddenly you got a building, not only you have to sell that, you got to go find another one.

It could be a nightmare.

So I would just say whenever you have the opportunity, especially in the beginning, save your money, put that cash in the bank, have it be ready for you when you need it.

Yes, I completely agree.

Use other people's money first.

Absolutely.

Opm, baby.

That's the key.

Absolutely.

Now let's dive into that just a little bit more because I heard you about to mention a few different ways that you can have, you know, have that storefront without actually buying it.

So let's talk about that a little bit because it sounded like leasing is one.

What are some other ways?

Well, actually, I mean, leasing is probably, that's, that's going to be the easiest for everybody.

I mean, that, that's how you do it.

I mean, I don't know what other other ways there would be short of working out of your home or something.

And that would depend on the type of business.

You know, obviously you can't run a restaurant.

Well, some people have run restaurants out of their homes.

But no, I think primarily it's leasing.

And what you've got to keep in mind when you're going to lease a property, that's also very much like going for a loan because that landlord is looking at you saying, okay, I'm going to tie up my building for X amount of time.

Are they going to be able to pay me for that period of time?

You know, might I be putting somebody in here who can't pay me, and I could have had somebody that would pay me in that same space.

They're going to look at your books, they're going to, especially if you're a startup, they're going to know about your financials, they're going to want to know about all those things.

And it's just as important for them as it is for a bank.

So that's something to keep in mind when these people are going, going out and looking for spaces.

Also know, have a good idea where you're going to be when you, when you do show up at your lender.

I can tell you that we, you know, we will start working on a project and they might lose their site.

It could take up to a year to find a new site, a suitable site for somebody.

And that goes whether you're buying a building or leasing it.

So have that pretty much done.

And you know, don't sign, don't ever execute a lease or anything like that before you have your loan approvals, but at least have a, have a letter of interest, have talked to the landlord, have a good idea about the space, whether or not it's going to work for you.

Because a lot of lenders, and I am one of those, I won't work on your project until, at least, I won't fully work on your project until you have identified the site.

I just, I can't make an informed decision until I know that and it's going to be, have a great bearing on the success or failure of your business.

Gotcha.

So thinking about that, what do you all require, like for instance, to lend since you know you can't sign a lease ahead of time.

Just something from the landlord saying that.

It'S, you get, well, you get, you'll get a lease that's not signed.

Gotcha.

Okay.

The landlord will prepare the lease and we can review it, make sure it's, it's not only covering everything that we need to cover work, it's covering you remember when we're underwriting this, you as the borrower are our customers, our customer.

We look out for you.

We don't have any.

But we're not beholden to the landlord.

We're not beholden to the, if you're buying a business, we don't really care that much about the seller.

We care about you.

You are the one we want to be successful.

And we're going to go through all those documents and make sure that they are covering you the way they need to cover you.

And so that, that is Very, very important.

Gotcha.

So hopefully that helps someone out there.

Don't sign that leash yet.

Let your lender see it first.

Please don't.

Yeah, don't commit to these things until you have your, all your approvals and your lender tells you, yes, go ahead.

You'll see that with construction projects too.

People go out and start breaking ground that can actually kill your deal.

You'll get people that they'll get.

You know, they'll be in with their bank and they're in underwriting and the loan officer says, oh, don't worry, yeah, it's going to pass, it's going to go through and you'll be approved and they'll go out and break ground.

Now suddenly we have problems getting title insurance.

We have a lot of different things that trips and a lot of banks will just say, I'm out and they'll walk away.

So don't ever do that without permission.

Don't ever start the project, be whatever project it is until you have all your approvals and you have clearances.

Gotcha.

And I know we're all over the place, y'all, but that's why I left this open because we just gonna let.

Yeah, well, it's a broad subject, you know, and it's different for every business.

Exactly.

And I want to kind of stay here for a minute too where we talk about lending no nos.

Because I'm like, I didn't know that part.

And so what are some other lending no nos that other business owners should be aware of too?

Well, yeah, I mentioned that not knowing what it is you need, and that's probably the big one.

I think just showing up unprepared is probably the biggest.

No, no, really know your business and that's what we're looking for.

Remember that the bottom line for every lender is how are you going to pay me back?

Right.

I mean, that's kind of the end story here.

Everybody wants you to be successful and everything else, but a bank, in particular a bank, and we're a non bank lender, so we don't have shareholders and everything else, but a bank has shareholders and the FDIC breathing down their neck and all those things.

And they want to know, you know, these things.

So I would say, you know, really know how, how your business is going to operate and most importantly, how you're going to pay back the money that you're going to borrow and explain that to them in detail.

Okay, gotcha.

So make sure a you know what you're going to use the money for.

How it's going to play, and then also make sure you can iterate that to the lender and then how they're going to get their money back, because that is the main thing that they're interested in.

And then make sure you don't sign any leases or start any projects before you get that final approval.

That's it.

Everybody gets excited and they want to get started, but you've got to do it the right way or you can really put yourself behind the eight ball.

I love that.

I love that.

Now we have time.

Is there one more thing that small business owners should know before they step to a lender or a.

No, no.

That they shouldn't do before they step to a lender?

Boy, I think just, you know, you have all your ducks in a row.

You get all your documentation together, and you're going to need tax returns, personal and business.

You're going to need your business plan, you're going to need all these things and assemble them.

And then I would say just show up with an open mind.

You know, ask advice.

This person you're talking to, when you go to a bank or any lender, they've probably done this a lot more times than you have.

So ask their advice on, you know, what do you think about this?

What do you think they might have.

They might have advice for you on, you know, well, maybe you don't need to spend the money here in the beginning.

You can park that.

You know, different things, and it's different for every business.

So I'd say show up with an open mind, but I just, I can't harp enough with, you know, be prepared, be prepared, be prepared.

And you mentioned tax returns.

And I want to stay there for a minute, too, because, you know, small business owners, everybody's like, oh, I want to write off this, I want to write off that.

I want to write off this.

But how does that hurt in the lending process?

Well, I mean, you want to show profitability, right?

I mean, that's one of the things that we struggle with as lenders all the time because we have accountants.

You know, you have your accountant on one side trying to make you pay as few taxes, you know, as little in taxes as possible.

And so you've got that working against a banker who wants to see as much profit as possible.

So really, it's kind of a wrestling match.

And that goes to the expertise of the bank.

The bank should be able to look at it and say, okay, these are certain deductions they took and certain expenses that we need to Add back for practical purposes, you know, depreciation is a good example.

You might have $25,000 in depreciation.

Was that really an expense that went out the door?

No, it wasn't.

It was a paper expense.

So those are things that lenders add back, things like that.

Gotcha, gotcha.

And I think it was important for us to mention that because they're going to want to see those tax returns, y'all.

I had to learn the hard way because I was like, oh, I want to write off this and I want to write off that when I was, you know, brand new in my business.

And then I realized, well, if I'm not profitable, then, you know, if I need to get something, you know, at that time I wanted to buy another house, I'm like, I'm not going to be able to do it.

And then I have to wait now another two years of actually being profitable on paper in order for that tax return to now count towards that.

So.

And you know, another piece of advice for everybody is find an accountant.

You can do QuickBooks, you can do your own day to day monthly books and everything else.

Find a good accountant that can keep your books together.

Because when you do come to a lender, we're going to tear them apart.

We're going to go through every year, we're going to find any anomalies, anything that's wrong.

And when we start finding things that are incorrect in, say something you file with the federal government or whatever that might have tax consequences.

But anytime we find that you don't really have, you don't really have good set of books means that you don't really know what your business is doing.

And so we look to that too.

So the integrity of your financials is very important.

And if you show up with a box full of receipts and say, yeah, we kind of did about $100,000 and here's our expenses and throw that on somebody's desk, I can pretty much guarantee you're not going to get that loan.

Gotcha, gotcha.

And then one more thing.

I know we're almost at time, but you had mentioned asking your lender for feedback.

So if we get denied for a loan, let's say, is it in good taste to ask the lender, hey, why did I get denied?

Or is there any feedback to make this better?

Yes, absolutely.

And that's.

Well, a couple things can happen.

One, you might find out that the reason they denied you and this does happen, was incorrect to begin with.

Maybe they got a piece of information wrong and Somebody glommed onto that and decided, oh, that's the reason not to give them the loan.

So I would always ask, why would we turn down what could we do to make this application better?

That's going to help you with, if you're going to another lender, that's going to tell you what you need to address up front.

Because we all kind of, while every bank is different, they have certain things they like, certain things they don't like.

We all kind of look at the same information.

So it's very helpful to get any kind of feedback you have.

And frankly, if you have a good lender, you should, you should know before you ever get to loan committee or anything, they should be giving you feedback in the process.

This is going to be a problem.

This is great.

This is not so much.

We've got to work on this.

You know, they should be giving you that feedback throughout the process.

So nothing should be a surprise.

Well, y'all, you heard it from the horse's mouth.

Make sure you're asking, you know, for feedback on the loan process as you're going.

If you have a lender and they're not giving you feedback, that may be a red flag.

You might need to go find another lender.

But thank you so much, Craig, for coming on the show today.

This was great.

And if people are interested in learning more about you or more information like this or even getting a loan, how could they find you?

Craig Califotti, Arkansas Capital.

I'm the EVP Director of Lending and we can be found@arcapital.com all right, perfect.

And I'll make sure I have those links in the show notes for you all.

Thank you again, Craig, and I hope you have a wonderful rest of your day.

It was a pleasure.

Thank you very much.

Bye.

Thank you for listening, joining, and being a part of the Money Talk with Tiff podcast this week.

You can check Tiff out every Thursday for a new Money Talk podcast, but if you just can't wait until next week, you can listen to previous podcast episodes@moneytalkwitht.com or follow TIFF on all social media platforms at Money Talk with T.

Until next time.

Spend wise by spending less than you make.

A word to the money wise is always sufficient.