You Have an Idea. Are You Prepared to Take It to the Bank?
After a successful run selling retail furniture, I decided that I needed a new challenge. It was the 1980s and my entrepreneurial spirit kicked back in. I loved cooking and serving people and thought it was a great idea to buy a restaurant. When I went to the bank to inquire about getting a loan, they wanted to know what experience I had, was I qualified and did I have a business plan. While I had good credit, I didn’t have experience and didn’t even know how to write a business plan. Naturally, I was considered a high risk.
For many entrepreneurs, a small business loan is an essential way to finance a new business or expand existing operations. However, obtaining funding for a business is no easy task. There are many barriers that can prevent you from getting the financing you might need. At this point, like many entrepreneurs, I have been to several banks requesting loans to support expansion and I am always prepared. To maximize your chance of success, there are three things to remember when you take your idea to the bank.
1. Create A Business Plan
Banks and lenders are usually cautious to finance a new business because they don’t have enough historical information about your company. How do they know if your business will succeed? How can they be sure that you’ll be a responsible owner and decision maker? Having a thought-out and thorough business plan is a great way to convince the lender that funding your startup is a smart investment. Your business plan should include your financial projections – future sales, profits, income, cash flow and qualitative goals associated with a timeline. Your plan should answer questions such as: How will you make a unique and important contribution to your market? Where, and how quickly do you expect your company to grow? You know that your business has what it takes to succeed, but your lender doesn’t. You can enlighten them, and give them confidence in your ideas with a strong business plan.
2. Educate Yourself
Your lender will help you decide what type of loan is best for your needs, but you shouldn’t enter this process without an understanding of the different financing options available. Your reasons for needing financing will dictate the type of small-business loan you request. It’s very difficult to get a loan in your company’s first year. Lenders require cash flow to support repayment of the loan. In this case, you may need to rely on business credit cards, crowd-funding, personal loans or a microloan from a nonprofit lender. For companies with a year or more of history and revenue, you have more financing options, including SBA loans, term loans, business lines of credit and invoice factoring. Do your research and ensure you can discuss each of these in depth. This will give your lender confidence that you’re making a calculated decision about the financing of your business.
3. Have Your Documentation Ready
The list of loan application requirements will vary from lender to lender, but there are common documents that almost every lender will require. Things like bank statements, income statements, personal tax returns, resumes and financial projections. Getting a small business loan can be a time-consuming process. Organizing your information can be difficult, but you’ll save a lot of time on your loan application if you get these documents ready before you apply.
Entrepreneurs and businesses take out commercial bank loans for a variety of reasons. Loans can come from other sources as well. Credit unions make loans to small businesses. Loans can be made using accounts receivable or inventory as collateral. Borrowing money is expensive for a company and raises its risk. In addition to the risk of whatever enterprise you are undertaking, borrowing money introduces another level of risk to your company. Regardless, debt is one of the forms of financing small business operations.
Once you’ve made it public you’re considering a loan for your business, you will be met with many opinions. From general naysayers to cautionary anecdotes, everyone has a story as to what might happen. While it’s true that not every reason is a good reason to go into debt, that doesn’t mean that good reasons don’t exist. Before borrowing money, however, it’s important to understand that you will be held accountable for repaying the loan, no matter what happens. Evaluate your position, make sure you’re exploring many options and make a deliberate and educated decision. Commercial loans aren’t right for every company, but for the right business, it can make all the difference. I95
Wanda Smith is Founder, CEO and President of Symphony Placements. She founded two prior companies before launching Symphony Placements, one of the most successful and fastest growing woman-owned flexible staffing firms in Maryland. Symphony Placements is a full-service flexible staffing and human resource solutions company.