June 2016- By Paul Long
As a banker for 19 years it is always amazing to me how people “pitch” there loan idea to me. I have had very formal presentations, I have had phone calls that made no since, I had people with a plan but no understanding of their own business. So this article will give you some tips on how to present your loan to a banker, what they look for, and how to wow them into giving you money.
Who are you pitching to?
The most important thing to realize is who are you pitching too, is it the right person? If you are looking for a $75,000 startup loan, are you presenting this to a loan officer the primarily works on commercial real estate or the banker that works primarily with small businesses like yourself. When you are making the appointment with a banker one of the most important questions to ask of the banker is do you work with this type of loan request, if not is there someone else in your office that does? You want to make your pitch to the right person, you don’t want them to say no just because they are not familiar with startup businesses.
What is the banks specialty? Ask your friends, community members and even the banker. What is the banks specialty when it comes to business lending? Do they offer SBA (Small Business Administration) Financing Programs? I know many banks that don’t want to work with startups or certain industries, don’t be afraid to ask. Both your time and the banker’s time is valuable.
Don’t be too formal
Please do not come with a PowerPoint presentation or formal business plan that is in binder or presentation folder. We do want to see your business but we want to see that you put the effort into the plans data more than the look of it.
Have you ever watched the TV show Shark Tank? If not, you should because those are good examples of how to present. Get to the point, be specific and tell is what you want. Community Banks like to also hear about who you are, what is your background, college education etc. At the end of the day we lend to people, not a business.
One of the most common things that I see in business plans is that their projections are not reasonable. If you are a startup business there is no way that you can make a ton of money the first month, then continue that same amount month over month. You need to have a slow start and increase as time goes on. When it comes to expenses you will probably have more up front expenses so be clear about them, also make your variable costs variable and you’re fixed costs fixed. If you are truly projecting that you are going to lose money the first year then state that, that isn’t a bad thing. Most all businesses lose money there first year or so, just be reasonable.
Also in your plan make sure to have a breakdown of how you are using the bank funds. If you are starting up a bakery. You should know how much the equipment will cost and how much working capital you will need.
How much can you give me?
When the banker asks you how much you need do not say “I don’t know, how much can you give me?” you will automatically be turndown. What was said in that statement is that I haven’t done my research and you just want the money with no plan. Chances are you also have no money to put in yourself into the project. A bank will not fund 100% of your plan, you need to come to the table with some money to put into the business, the more money the better. Make this a focal point in your presentation.
How do you plan on repaying the loan?
It is common since that the business that you are starting is how you will repay the loan but what if it fails or you have a hard time making your payment because your projections were wrong. What are the secondary sources of repayment for the loan? Do you have a spouse that works full time at another job? Do you have retirement assets? Do you have a house with equity? Bankers always are thinking of risk and how will it be paid back. Tell us your backup plan is something fails, it will impress us!
Have your personal financial house in order
Especially for startup businesses we will look to the owner for their guarantee. If you have personal financial issues chances are so will your business. The banker will ask about your personal credit. If you do have some financial issues be upfront about them and even more important is state what you have done since the “issue” and why we should feel better about the situation.
Overall when presenting a startup loan don’t be nervous, get to the point and tell us why you are a low risk.