So at this point you have written a solid business plan with all the bells and whistles including concrete market research, a killer marketing plan, conservative sales forecasts, and accurate financial statements to back it all up. But like many entrepreneurs you need additional funding to get started. You know there are a number of sources of funding and have carefully explored each outlet but have decided given your operation, a small business loan is the most plausible. In these unique (horrid) economic times what can you do to increase your chances of qualifying for this type of funding? Below are a few tips:
Immediately Meet with Lenders – Before you formally submit your business plan and financials make a point to meet with your chosen lenders and begin to develop a relationship or at least a line of communication. Part of the reason you will get approved for a loan is because the bank likes the type of person you are, they want to see what type of personality you have and how passionate and ambitious you are about your new venture.
At First, Act Ignorant – When you first speak with the bank, act a little ignorant about the process in general. This will allow the lender to provide information for you and give you insights as to what that particular bank looks for in a business plan. They may divulge information that you might not have been introduced to had you acted like a know-it-all. “Acting” is not the same a “being” ignorant; know as much as you can before you meet with the loan officer.
Determine What is Important to the Lender – This tip kind of coincides with #2. Each bank is different; they each look for a different set of criteria when analyzing a business plan. For some, collateral is a prerequisite. Others may consider the loan with no collateral if the positive cash flow can be reached in a short period of time. Also, find out how the bank feels about your industry. Have they approved loans for similar businesses in the past? Do these process SBA loans? Use this knowledge to alter you business plan.
Keep Your Financials Short & Sweet – Don’t overwhelm the lender with super detailed statements too soon. In the beginning the bank simply wants to see the basics. What are your costs, sales, expenses, and net profit each month and at what point does the business reach consistent profits? They don’t need to know exactly how much you intend to spend on inventory or marketing materials at the first meeting. However, be prepared to provide these details immediately upon request.
Have a Prototype – If your business is product based, prepare a prototype to show to the bank. This gives them a more realistic idea of what you are selling. It also shows that you care enough about your project to put in the time, effort, and money to create a trial product.
Network – Determine who has worked with the lender in the past. See if this person or company doesn’t mind you “name-dropping” or better yet, making an introduction on your behalf.
Work with the SBA – The Small Business Administration can be very helpful in formulating your business plan and securing funding. However, be aware, some banks don’t particularly like issuing SBA backed loans due to the added paperwork involved.