Successfully Chasing Economical Funding

Despite the economy and the reluctance of many lenders to loan money, today almost every marina and boatyard can secure needed funding. Obviously, an owner or operator seeking to borrow faces many challenges, not the least of which is the higher cost of that funding.

Good times or bad, the most difficult question to answer is what kind of funding should a marina or boatyard seek? Few owners or operators are aware of all the options available — or don’t have the time to explore the many possibilities. It turns out there is a vast menu of choices, each with their pluses and minuses.

Keeping it in the Family
It is wise for every business owner to have at least some personal funds at risk to show potential lenders or investors that the owner is committed to the success of the business. The most basic, and frequently the most affordable, option, uses personal or family funds to finance the marina or boatyard.
So-called “Boot Strapping” can involve personal investment by the founders, their family and friends, and/or the owners foregoing salary. Unfortunately, our tax laws make self-funding a touchy -– and complex — strategy.

Whenever a loan is made between related parties, or when a shareholder makes a loan to his or her incorporated business, our tax laws require a fair-market interest to be included. If not, the IRS makes adjustments to the below-market (interest) rate transaction to properly reflect “imputed” interest. How big the tax impact depends on the effect of added interest income to the lender and the bite of an offsetting interest expense deduction felt by the borrower.

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Avoiding the potential pitfalls of self-financing means small business loans. Here, a marina owner or operator must understand exactly how much money is needed, what it is needed for and, most importantly, how it will be repaid.
Today’s interest rates have translated into lenders being more selective. Term loans from a bank are often used by a borrower to purchase business assets or finance expansion over a period of time. Term loans provide access to borrowed funds upfront, in one lump sum, with fixed monthly payments based on the loan’s purpose.

Acquiring Bank Funding
According to the Federal Reserve’s Small Business Credit Survey, 43% of small businesses applied for loans from banks. Obviously, some banks are more likely to make loans than others.

The marina or boatyard owner or operator’s first stop in the search for affordable funding should be its bank. Even without a personal relationship with the bank, it is familiar with the business, putting it one step of other applicants.

And don’t forget that banks provide many services and can provide guidance to other funding resources. Of course, if a bank won’t lend the marina or boatyard the needed funds, the good news is that there are now lots of other options.

Today’s challenging lending environment adds yet another element to the task of funding the boatyard or marina, a challenge that may be overcome by taking advantage of one of the government’s many funding programs. For instance, a government loan guarantee can overcome the reluctance of many bankers to provide affordable funding -– and better terms.

The Small Business Administration
The U.S. Small Business Administration (SBA) doesn’t do much lending. Rather, the bulk of their financing comes in the form of “guarantees.” They guarantee the repayment of loans made by a financial institution, thereby lowering or reducing the institution’s risk and, in most cases, the amount of interest charged to the borrower.

SBA loan programs are generally intended to encourage longer-term small business financing -– but not always. In general, maximum loan maturities have been established: 25 years for real estate, up to 10 years for equipment (depending on the useful life of the equipment), and, generally up to seven years for working capital. Short-term, so-called “Micro Loans,” are also available through the SBA that can help many marinas, boatyard, and other small businesses meet their short-term and cyclical working capital needs.

Funding Locally
One of the best sources of assistance -– and in many cases funding, are the many state, regional, and local economic development agencies. There are nearly 12,000 economic development groups in the United States whose purpose is to provide economic growth and development in the areas they serve. While not always a source of direct financing, a state’s office or agency for economic development can be a guide to regional and local funding sources.

Even those who are aware of public funding often have misconceptions about who will and will not qualify. Many of these programs are looking for businesses with proven track records. The state, regional, and local agencies are willing to help them expand their sales, which will help expand the tax base and increase employment.

Other Options
A marina or boatyard that wants or needs to borrow outside the traditional bank or SBA system, has many options. There are hundreds of specialist small business lenders that can help with those borrowing needs although requirements, terms, and interest rates will vary widely.

Like banks, credit unions offer favorable rates and loans backed by the SBA. However, unlike banks, credit unions have increased their small business funding. In fact, the number of credit unions offering small business financing has doubled according to the Consumer Finance Protection Bureau (CFPB).

Alternative Funding
An important form of alternative financing is so-called “asset-based” lending. In general, commercial finance companies are often willing to lend funds to marinas or boatyards that cannot, for various reasons, secure funds from a bank. The credit is secured by the business’s assets, such as receivables, inventory, equipment and, sometimes, real estate.

Admittedly, while asset-based lenders usually advance capital more quickly and more readily than banks, they charge more for the higher risks involved. The loans are offered on a revolving line of credit or term basis. The revolving credit allows the business to draw on a line of credit as needed over a fixed time period.

Equipment financing is ideal for any marina or boatyard that needs hard assets quickly but can’t afford to purchase them outright. Equipment financing is available not only from banks or with SBA guarantees. There are also lenders, including dealers and distributors, offering targeted financing programs.

The Internet

A recent report from the Federal Reserve indicated that small businesses are picking alternative financing options, such as crowdfunding, peer-to-peer lending, and FinTech platforms for their funding.

Thanks to changes by both the IRS and the Securities and Exchange Commission (SEC), crowdfunding is helping many small businesses. Crowdfunding that relies on investors can help get an idea, project or business off the ground, often rewarding investors with perks and/or equity in exchange for cash.

Although the popularity of crowdfunding has increased, there are caveats. The proposal or business must, for example, be intriguing enough to attract multiple investors. With equity crowdfunding, where investors are given a stake in the marina or boatyard there are strict SEC regulations both the business and investors must follow.

Somewhat less regulated than crowdfunding, so-called funding “platforms” are an increasingly popular door to Internet financing. With an online lender, bad credit is not always a barrier to getting the needed financing although often expensive. However, while these lenders put up fewer barriers, other drawbacks include significantly higher risk and lower loan amounts.

An often-overlooked Internet option are peer-to-peer business lenders. These lenders eliminate the middleman, such as banks, to connect borrowers with individuals and institutional investors. Unfortunately, the cost of borrowing with Peer-to-Peer financing can often be higher than more conventional financing.

Free Funds
What business wouldn’t benefit from the “free” funding possible with grants and loans. Separating grants and loans is that loans must be repaid while there’s usually no payment of grant amounts.

Most often, a business receiving a grant goes through an application process to show they qualify. They then agree to spend the money in whatever manner they agreed to. Best of all, funds obtained as a grant do not have to be repaid unless the operation violates the terms of the grant.
When seeking government grants, a good place to begin is, a centralized online site to locate and apply for federal government grants from several agencies. When it comes to other grants, the U.S. Chamber of Commerce maintains a website of available grants

Good Credit = Affordable Funding
Many small businesses with good business credit have discovered it is possible to get loans without an onerous and often embarrassing personal guarantee. With strong business credit, a business can often borrow at a lower cost, with more favorable terms — even in today’s economic climate.

Finding the right financing for the boatyard or marina is one of the most important tasks an owner or operator will face. Funding to help and expand the operation is widely available to those owners and operators willing to do their homework. Comparison shopping for lenders, rates, and terms is strongly recommended.