It's been said that you never have a second chance to make a good first impression. Nowhere is that more important than when you present a business loan proposal to a potential lender. You can increase your chances of getting a startup loan by following these tips for presenting the loan.
Business loans are the riskiest loans because business is a risky enterprise. Startup loans are even riskier; the Small Business Administration (SBA) says 50% of small businesses fail in the first five years. A small business can still increase the odds of success by remembering these factors:
- The information you provide to the lender.
- How you present that information.
Included in this article is a discussion about presenting a business loan proposal to a lender. The information you provide should be in the form of a formal business plan. These tips assume that you already have prepared that business plan and that it's perfect, accurate, and complete.
Make an Appointment
Lenders, like all of us, are busy people. If you want to impress a lender, call ahead and make an appointment for a specific time. Ask if the company is lending now, and give a brief one or two-sentence description of your business and why you want money, sometimes referred to as an "elevator pitch."
Talking by phone will save you time if the lender is truly not interested, but remember this is how banks, credit unions, and other commercial lenders make their money.
In a situation where you aren't sure how to dress, it's always better to be overdressed than underdressed. If you want your loan proposal to be taken seriously, dress like you are serious.
Understand What a Lender Is Looking For
It's been said that lenders lend money to people who don't need it. In tough financial times, it's even truer. A lender wants to know only two things:
- How much do you want?
- How will you be able to pay it back?
The answers to the first question are shown in the business plan and financial spreadsheets you will be presenting. You will need a balance sheet, a proposed income statement (P&L), a break-even analysis, and possible sources and uses of funds statement to show where the money will come from and where it will be spent. Larger businesses may use a business requirements document to show how the funds will be used in a big project.
The answers to the second question can be developed as you talk to the lender. Have an understanding of the "4 C's of credit" and what kinds of credit a lender is looking for. For example, you most likely will be required to provide a personal guarantee for that business loan, which is very common for startups. If you have the personal guarantee documents prepared, it will increase your credibility and the likelihood of getting that loan.
Be Prepared With Information
Bring all the information needed for the lender to make a decision. This includes personal information on yourself and any possible co-signers, in addition to a business plan and financial documents. You should bring your personal financial statement.
If you think there may be issues with your credit, check your credit score and get a detailed credit report. If you have assets you want to use as collateral, bring information on those assets. You want to be able to answer the lender's two questions above as completely as possible.
Remember the two things a lender wants to know. Talking about all the wonderful features of your business and how you found the idea for the business takes time and doesn't answer the questions.
The best way to be brief and complete is to have an executive summary of your business plan available for the lender to read. Include some meaningful graphs or charts to illustrate the financial projections you have prepared.
Plan What You Will Say
You may or may not get an opportunity to talk much, so work on the inverted pyramid method that newspapers use: Start with the most important information, to answer the lender's primary questions. Then, if you have time and the lender appears interested, talk more about your business and what you hope to achieve.
Use One Loan Presentation To Make the Next One Better
If you get a "no" answer, ask this question: "Under what circumstances would you consider giving a loan to this business?" If the answer is something like, "When hell freezes over," move on. It may be you are asking for too much, you have omitted some key piece of information, or you may need more collateral from your personal funds or a co-signer. Each meeting can be a learning experience and a step to better the experience the next time around.
Present to Several Lenders at Once
It may take you several banks or credit unions to fine-tune your presentation. Putting together a list of possible lenders helps you see the possibilities. As mentioned above, think out of the box, including credit unions on your list.
Have a Backup Plan
Know what you can do if you get rejected by lenders. Having a backup keeps your stress level lower, makes you less likely to show desperation and keeps you thinking ahead.
Consider Other Alternatives
If you have run through your list of possible lenders and you still don't have a loan, don't give up. Look at other sources of funding, such as trade credit, family and friends, or crowdsourcing. Also, you may want to consider scaling down your request.