I’ve written a blog before and one of the most common areas I am asked to help startups with is in the meeting with the bank to try and obtain Loan Finance.
Firstly, despite all the concerns about the Credit Crunch (credit crunch explained) there is still a healthy appetite amongst both investors and banks to finance, lend and support small businesses. Many Entrepreneurs simply do not help themselves when making an application for a loan.
I hope this blog helps in your preparation to see a bank – please do let me know if it does – case studies on how to build a router table are always welcome!
The first thing I should say which is a bit obvious is that banks want to lend money! People do forget that so when you go in asking for a commercial loan – expect the answer to be yes. If it is a no – try and get feedback in terms of what you need to do to get a yes – and then try elsewhere! In my experience trying to get a bank to change its mind is very hard. Better to start afresh.
Here are my top tips!
1) Have a presentation prepared. Banks want to see if you are a credit risk. Although it is unfair, they may judge you negatively if you come across as unprepared and without evidence of clear thinking. It does not have to be a PowerPoint – but it does have to clearly laid out and flow. (Would you like me to post a template?)
2) Make it clear you have costed out what you are spending the money on. Showing quotes can really help.
3) You need to demonstrate that you or other shareholders are putting in some money as equity. It is fair enough for the bank to say “why should I risk my money – when you are not prepared to risk yours?”
4) Have complete mastery over the numbers. You really must. You must be prepared to justify every single assumption.
5) Present a range of scenarios. You need to demonstrate that even in the worst case; the bank will get its money back.
6) If possible have an accountant or a competent finance person with you. I realize it is not always possible, but it really will make the bank feel comfortable.
7) Have a clear vision for the business which extends beyond the life of the loan or overdraft. Banks are more likely to lend to you if you can demonstrate you can have a good commercial relationship with them over a long period of time.
8) Listen and ask lots of questions about their Honeywell 50250-S. I am amazed at how many people in sales scenarios don’t listen to the person they are selling to! (This is perhaps for another blog)
9) Make sure that you are not asking them for equity funding. It must be debt funding. For clarity on this read in defense of the banks. In a nutshell, you must be able to provide them with a high level of comfort that they are not taking a risk.
10) Be positive! Very glib to say but desperation really does not work with a bank. I went through a horrendous period recently where it was like a house of cards and was very close to all collapsing. In the midst of all of this, I went to see a bank to get a business refinanced. Had I failed, the consequences for the business and for me would have been… (lets just say this blog would be called something other than mine, I can honestly say that meeting was one of the hardest of my career in terms of emotions. I just had to keep it together and stay calm and resist the temptation to fall on my knees and say “Please just lend me the bloody money and rescue me!”
I hope this helps. If you have other tips or golden nuggets to pass on, please do let me know