It's been said that you never get a second chance to make a good first impression, so you should always try your best the first time around. There is no situation in which this is more important than when you are pitching a business loan idea to a potential investor. If you follow these suggestions for presenting the loan, you can increase the likelihood that you will be approved for a loan to start a business.
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Because running a business is inherently risky, lenders view business financing as carrying the highest level of uncertainty. Even more risky are loans for startups, given that the Small Business Administration (SBA) estimates that half of all new small businesses will fail within their first five years. A small business can still improve its chances of being successful by keeping in mind the following factors:
- The information that you give to the financial institution.
- The manner in which you present that data.
This article includes a discussion on how to present a business loan proposal to a lender in order to obtain financing for the business. The information that you provide ought to be presented in the form of a conventional business plan. These suggestions are based on the assumption that you already have that business plan prepared and that it is flawless, accurate, and comprehensive.
Schedule an Appointment
The people who lend money are busy people, just like the rest of us. If you want to make a good impression on a lender, you should call ahead and schedule a meeting for a specific time slot. Ask the company if they are currently making loans, and then give a brief description of your company and the reasons why you need money. This is what is known as a "elevator pitch," and it should only be one or two sentences long.
If the lender is truly not interested, saving time by talking to them over the phone will save you time; however, keep in mind that this is how banks, credit unions, and other commercial lenders make their money.
If you find yourself in a circumstance in which you are unsure of how to dress, it is always preferable to be overdressed rather than underdressed. Dress in a manner befitting the gravity of the situation if you want your request for a loan to be taken seriously.
Comprehend the Requirements of Lenders
It has been suggested that lenders lend money to individuals who do not require it. In difficult economic times, this is even more true. A lender is only interested in two things:
How much do you want?
How are you planning to repay it?
The business plan and financial spreadsheets you will present contain the answers to the first question. You will need a balance sheet, a projected income statement (P&L), a break-even analysis, and a sources and uses of funds statement to demonstrate where the funds will come from and how they will be spent. Larger businesses may use a business requirements document to demonstrate how project funds will be allocated.
You can develop the answers to the second question as you speak with the lender. Be familiar with the "4 C's of credit" and the types of credit that lenders seek. For instance, you will likely be required to provide a personal guarantee for that business loan, as this is a common requirement for startups. If you have the personal guarantee documents prepared, your credibility and likelihood of obtaining the loan will increase.
Bring all the necessary information for the lender to make a determination. This includes your personal information and any potential co-signers, as well as a business plan and financial documents. Bring your personal financial statement with you.
If you suspect credit problems, you should check your credit score and obtain a credit report. If you have assets you wish to use as collateral, please bring details about them. You should be able to respond to the lender's two questions as thoroughly as possible.
Remember the two questions a lender will ask. Discussing all the wonderful aspects of your business and how you came up with the concept for the business is time-consuming and does not answer the questions.
The best way to be concise and comprehensive is to provide the lender with an executive summary of your business plan. Include meaningful graphs or charts to illustrate the prepared financial projections.
You may or may not have ample opportunity to speak, so utilize the inverted pyramid technique employed by newspapers: Start with the most vital details in order to address the lender's primary concerns. Afterwards, if you have time and the lender appears interested, elaborate on your business and your goals.
If the answer is "no," ask, "Under what circumstances would you consider lending money to this business?" If the response is something along the lines of "When hell freezes over," proceed. You may be asking for too much, have omitted important information, or require additional collateral from personal funds or a co-signer. Each meeting can be a learning opportunity and a step toward enhancing the next encounter.
It may take multiple banks or credit unions for you to perfect your presentation. Creating a list of potential lenders helps you visualize the possibilities. As stated previously, think outside the box and include credit unions on your list.
Consider your options if you are rejected by lenders. Having a backup reduces stress, reduces the likelihood of displaying desperation, and keeps you thinking ahead.
Don't give up if you've exhausted your list of potential lenders and still don't have a loan. Consider alternative funding options such as trade credit, family and friends, and crowdsourcing. Additionally, you may want to consider reducing your request.
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