Get the Funding Your Business Needs
It’s not just about the numbers when you ask for a loan. Your lender wants to also know a couple of things about you that go beyond what is stated on your financial statements. First, they want to know that you have the intent to pay them back. Your past credit history will help with that determination. But if the past recession has ruined your business credit score, there is still hope. That’s one of the beauties of business credit. It is not tied to just personal credit scores. At this point, it becomes a judgment call by the lender. More traditional banks may not give much leeway to the rules, but community banks and private lenders will often judge character as much or more than anything else. Second, the lender wants to know that you have the ability to pay the money back. The financial statements from the bank will show the assets and liabilities of the company, but the lender wants more. They want to know that a sudden influx of cash through the loan isn’t going to make you go crazy. They want to know what will happen to the money, and what the ROI (return on investment) will be. This is when what you say is just as important as the documentation you present. Here are some things you never want to say:
Mistake #1: I need the money. If you act desperate, no one will want to loan you money. Making a statement like “I really need the money” will make them wonder how you let the business get that bad in the first place. It’s just not something that a savvy business person would say. A better approach would be to show what you intend to do with the proceeds, and how this will make your business money, and provide more than enough cash flow to pay back the loan.
Mistake #2: The business will do down without this loan. The lender isn’t in the business of keeping your business going. If your business is going down, that could be due to competition, market shift, bad management, improved technology — basically, you name it. Some businesses close when industry and market conditions change. Like we say, “Adapt or die.” Don’t use desperation as part of your loan presentation. It may be true, but you have to go into loan meetings with confidence, and show that you are ready to steer your business into the new economy.
Mistake #3: The first thing I’m going to do is pay myself a salary. This is a mistake that first-time business owners often make after they’ve put a lot of unpaid time into a business developing a new product, service, or technology. It’s also a surefire way to make your potential lender walks away. The lender wants to make sure he’s getting repaid, and he really doesn’t care whether you get paid or not. Here are some other questions you can expect a lender to ask:
- Why are you applying for this loan?
- How will you use the loan proceeds?
- What assets will be purchased?
- What other business debt are you incurring?
Plan ahead as to how you will respond to these questions, because the wrong answer could stop your loan cold.
Photo Credit: Jenny Kaczorowski, Flickr.