Sailing Over Business Loan Hurdles - 5 C's to Consider & 7 Tips for a Good First Impression
Do you remember your first experience with money? Maybe it was a “surprise” from the tooth fairy or a monthly allowance or a birthday gift. Knowing how to handle money is an important life skill, whether you’re 6 or 106. Do you have a professional, trusted financial mentor to help you navigate the steps to becoming a profitable company?
Entrepreneurship requires discipline, planning, and vision. When you do the hard work necessary for the first two, you’ll have a foundation in place to request financing for your vision. There are 5 areas a lender will assess (besides looking at your financials) when deciding whether to extend a loan to you: Character, Capacity, Collateral, Conditions, and Capital.
No, we don’t mean a character such as in Peanuts or Calvin & Hobbes. The bank wants to know whether the recipient’s personal ethics are trustworthy. For example:
· Do you have any prior business experience?
· Do you have a good history with your current bank?
· What is your credit score?
· Can you provide a personal financial statement and tax returns for at least the past three years?
· Do you have references or referrals from any professionals who have reviewed your business plan?
· Does your business plan have short-term and long-term goals?
· Do you personally have a significant financial investment in the company?
· Are you involved in the community?
· What is your debt ratio?
· Do you have cash reserves?
· Is there evidence that you can afford to repay the loan?
This is what the bank will collect from you if you default on your loan. Lenders need an alternative form of payment to pursue.
· Have you already done a sample risk assessment yourself? Would you loan to you or are you really not quite where you need to be yet?
· What do you own that could be a source of collateral for you? Owning out-right is always preferable to property against which there is already a loan.
· What is the true value of your collateral? Is it solid or will it depreciate over time?
Be specific and realistic when determining your estimated loan amount. Entrepreneurs often underestimate what they think will be necessary. It’s better to overestimate and keep the extra in reserve to pay off the loan faster than to underestimate and have to make an additional request.
· How much money do you need?
· What is the purpose of these funds?
· How long is the borrowing period?
· What interest rate is available to you?
· Are your assets easy to turn into cash?
· Do you have an additional backer/co-signer invested in the company?
Remember that first impressions are lasting impressions.
· Do your homework – be thorough in making sure you have all necessary documentation
· Anticipate possible questions about your financials
· Present your paperwork in a neat, organized format
· Dress professionally
· Project confidence
· Turn off your phone or other gadgets
Be patient – it will likely take 2-4 weeks for everything to be reviewed. While you’re waiting, stay disciplined and focused on your goals. Maintain a regular schedule. Keep in touch with your support network for ongoing encouragement. Get out-of-doors for a bit of exercise. And, of course, continue being creative and passionate about what you do. It shows!
Lynn Talbott, MBA, PHR, has over 20 years’ experience consulting with entrepreneurs of small to mid-sized businesses in the HR and office management capacity. Her specialty is Office/Human Resource Manager coaching and training and finding practical solutions for bookkeeping errors and HR blunders. Lynn has helped manage over 50 business start-ups and many of those companies continue to rely on her expertise today as they continue to grow.