They don’t say that it takes money to make money for no reason, because the fact is, it does. But for the entrepreneur, that often results in a Catch-22 situation: If you have no money in the first place, how do you start the cycle?
Get a loan, of course.
But that often seems easier said than done too, especially if you run a new startup. The fact is, of all of the loans that a bank can make, lending to an unproven new business is just about one of the riskiest. After all, a startup has no track record, no customers, likely little collateral, and no history of repaying loans on time. So what is the entrepreneur to do?
Reduce the risk, that’s what. The good news is that banks want to lend you money. Yes, you read that right – they want to lend you money. That is their business, and that is how they make a profit. So given that, it is your job to make it easy for them to say yes, and you do that by showing that either your startup plan, or your existing business, is a sound financial investment.
1. Have concrete financials: Whether it is in your business plan (see below) or your P&L statement, or what have you, you impress a banker by showing that your business is on sound financial footing, has the potential for solid growth, and that you run a tight ship.
Second, your financial projections going forward need to be equally realistic and reality-based. There are few things that you can do worse than to show a lender a bunch of pie-in-the-sky projections.
Finally, you need to be able to show that your loan requirements make sense. Why do you need the amount you are requesting, and how / when will you pay it back? You better be able to easily handle those sorts of questions.
2. Have a solid business plan: Anyone investing in your business, be it a bank, a VC, an angel investor, or Uncle Paul, will want to see your plan. Where are you headed, how will you get there, what are the obstacles, and how much will it all cost? That is what your business plan must address.
3. Get a D&B D-U-N-S® number: This tells everyone that you know what you are doing. For example, the U.S. government and financial institutions require you to have a D-U-N-S® Number in order to apply for a loan.
4. Prepare a dynamite loan package: Anything you can share that casts your business in a good light helps: Clippings, contracts, letters of recommendation, client lists, etc.
5. Get to know your banker: It may seem as if getting a business loan is an impersonal, metric-driven process, but it is not. Relationships count, so get out there and create some.
[Photo Credit: mortgagebrokerusa.com]