With the right approach, securing additional business funding is simple.
Whether you are a new business or one that has been around for a while, there comes a time when you may need to find a financial partner willing to loan you money. The process of asking for money in any amount may seem daunting, but it’s not impossible to make a great impression on any lender and improve your chances of securing funds for your business.
Three simple strategies can give you more confidence during the process by providing insight into some of the factors that influence the loan approval process and how you can respond to them. Following these recommendations can add a level of comfort to a challenging process and position you for success when it comes to applying for and securing a small business loan.
Know your business. At the heart of any successful business is a strong business plan. Even before you consider lending options, you should have a well-articulated business plan that considers both the long-term strategy of your business and its day-to-day operations, including finances, staffing and marketing. The plan is designed to show anyone who reads it that you are not only passionate about your business, but you’ve also considered options for business viability.
Find a financial partner that “fits.” Lenders consider whether your business is a good fit for them before giving you money, so it only makes sense that you would make sure your lender is a great fit for you. While it may be tempting to find the first lender you can and just close the deal, don’t be afraid to interview potential lenders just as you do potential employees.
Your network of fellow business owners is a great resource for referrals. Ask about the banking relationships they value. Ask your tax advisor, insurance agent or attorney who they would recommend. Look into the network of civic and community organizations in which you are involved for recommendations or connections with individuals in the lending industry.
Do a little research on the lenders you are considering. Do they work with other companies in your industry or similar industries? Past experience will give you an indication of how well they understand your business and their ability to recommend relevant solutions. Is the culture of the lender a good fit for you? Are they committed to small business growth? Do they have the capacity to grow with your company? Do you like the people you are talking to?
Plan your approach. Potential lenders will have many questions for you. Be prepared by thinking through the answers before your meeting. Just as you’ve “interviewed” them to find your top choice, meetings between you and your lender can also be thought of as an interview. This time, you’re the “candidate.”
Prepare a thorough explanation of the reason for your business. This information is already included in your business plan, so it’s just a matter of relaying it during the conversation. What need does your product or service address in the marketplace? What differentiates your business and positions it for success? Talk about your business operations. Who’s already on your team, both from an employee standpoint and from a consulting standpoint (CPA, attorney, insurance agent, financial advisor, etc.)? What experience do you have, either from past performance of your business or success in similar business environments? In other words, why are you qualified to run this business?
Know how much money you need—which is not always how much you want—and be ready to talk about how the funds will be used: equipment, inventory, salaries, cash, flow, etc. Offering this information during the conversation shows the lender that you understand the financial side of your business and what it really takes for it to run successfully.
Share a detailed explanation of your plan to pay back the money borrowed. As an existing business owner, show current financial statements and business tax returns from the previous three years. This documentation can verify that you have solid cash flow and can repay the loan. If you are a new business, be prepared to share cash flow projections and disclose your personal financial reserves and collateral that can be used for repayment, should the need arise. Whether you are an existing or new business owner, a contingency plan for repayment (should cash flow projections not be met) shows your lender that you have thought through many possible scenarios with your business and are committed to minimizing potential risks.
These three strategies show that financing your new or existing business needn’t be challenging. With some advanced preparation and a little research, you’ll be in a better position to successfully secure the funding you need, whether you are just starting out or looking to grow. iBi
J. Boger Hessing is vice president and commercial relationship manager with Princeville State Bank. For more information, call (309) 693-9494, email [email protected] or visit p-s-b.com.