Self-Employment Steps for Vocational Rehabilitation Counselors: Helping a Consumer Start a Business

Chapter 7:

The Loan Process

Lenders will not give a person special consideration for
loans because of his or her disability.

Lenders will not give a person special consideration for loans because of his or her disability. However, a woman or minority individual with a disability may be given special consideration (as discussed in the previous two sections). The lender will ask the consumer about his or her personal financial situation, credit history, assets, and collateral (10-33% of the total cash needed to start the business), how much money will be needed, and how it will be used.

Karla Benson wants a $50,000 loan. She has good credit, ample collateral, and an investment of 20% of the total cash needed to start her business.

  • Karla completes a brief (two-page) financial statement to determine whether the bank will approve the loan. The bank considers her character and credit rating, ability to make scheduled payments and repay the loan, capitalization of her business (to ensure that it is not undercapitalized), and Karla’s investment.

  • The bank does not always request a business plan, but likely will require one if Karla’s business appears financially weak or if it needs more information.

Lenders, other than banks, with special programs for financing potential or established businesses usually require a business plan. Compared to banks these lenders give smaller loans and have more lenient lending requirements. They need a business plan because, unlike banks, many of these organizations do not require that loan seekers have large assets and equity. A well-written business plan where the business looks feasible may reduce the risk of start-up. Banks, which tend to fund existing businesses, focus on financial strength. Other lenders tend to focus on the feasibility of the new business.

Funder aside, many think that a business plan is essential to help a person “think through” his or her business idea and examine key considerations prior to embarking on the venture. The lender will expect the borrower to answer some questions such as:

  • Who is your target market?
  • How will you reach your target market?
  • What research did you do to see if people are interested in your product or service?
  • Why do you think your business will be viable?
  • What is the state of this industry?
  • Who is your competition?
  • What are your credentials?
  • What are the credentials of your managers?
  • What will you use the loan for?
  • Will it cover costs?
  • Will the business be capitalized adequately?

Many places, including the SBA’s SBDCs and SCORE, help develop business plans. Most cities also have economic development resources, programs, and organizations with unique local services and/or perspectives. Outside metropolitan areas these resources may be limited, however.

A borrower’s presentation to the lender can make or break the loan. The financing plan should have been reviewed so that the lender’s copy is professional, accurate, and error free. The business owner should have prepared the proposal with confidence that he or she can answer any of the lender’s questions and defend all assertions. The borrower should dress and speak professionally. There may be questions about the person’s disability and his or her ability to run the business. Answering is at the borrower’s discretion, but a verbal explanation or a written statement in the business plan may help the lender understand the impact the disability has on the business.

In a nutshell: The applicant goes to the bank. The lender asks for either a business plan or a personal financial statement. The lender either is interested in making the loan (based on ample assets, collateral, good credit, etc.), or is uncomfortable and wants a guarantee. If the lender is interested, the application goes through various committees at the bank for approval — the time this takes varies among banks. If the bank is uncomfortable with making the loan, the lender routes the application through SBA to get a government guarantee, which usually takes two weeks. Based on SBA’s response, the lender either approves or rejects the loan.

If the loan is rejected by the bank but the applicant is determined to start a business, it is time to approach other lenders such as a microloan program. 

Working With Lenders

Like the SBA, many lenders have not worked with people with disabilities. It might be helpful for the counselor and/or advocate to anticipate the lender’s questions and role-play the situation with the consumer prior to his or her meeting with the lender. You also might accompany the consumer to the loan interview, providing support appropriate to his or her needs. You can relay information for the person whose speech is difficult to understand, or offer calm encouragement to the person with an emotional disability. Your familiar presence can help a person who has been unemployed for a long time overcome his fear of the unknown. If the lender has questions about business accommodations for disabilities, you can also provide technical information.

The counselor is an advocate and provides support for the applicant without interfering in the dialogue between the applicant and lender.

July 1998, 1st Revision June 1999, 2nd Revision February 2001