In order to receive financing, a business must apply for credit at a source such as a bank, commercial lender or leasing company. With proper planning and guidance, you can greatly influence the financial institution's decision on whether or not to extend you the amount of credit on the terms you desire. Since the credit source most likely knows little, if anything, about your business, it is your responsibility to educate them and get them to look favorably on your application.
HAVE A BUSINESS PLAN
A well conceived, comprehensive business plan is crucial. You must clearly and convincingly communicate what you intend to accomplish and how you plan to achieve your goals. The experience of writing the business plan forces you to become more focused about your specific business.
BE COMPLETE AND THOROUGH
A lender will give you an application to complete. Answer ALL of the questions in detail, fill in ALL of the blanks and provide COMPLETE addresses, etc. In most cases, your application and supporting documents are all a potential creditor may see of you. If you don’t care enough to provide all of the information as requested, why should the lender think you are going to pay enough attention to detail to make your business succeed? It may become tedious, but everything is requested for a reason. Plus, complete applications get expedited processing; incomplete applications get set aside for later follow-up.
KNOW HOW MUCH YOU NEED AND FOR WHAT PURPOSES
Be specific. It is up to you to know these things. It is not up to the lender to guess.
Optimism is expected, but unrealistic expectations create skepticism on the lender’s part. Explain how you will use the financing requested and how it will benefit the business. Be sure you don’t make exaggerated claims, as you will most likely lose credibility.
SHOW HOW YOU WILL PAY THE LOAN BACK
Build repayment into your financial projections. Your likelihood to repay is the ultimate consideration in evaluating your request. Collateral is important, but lenders would rather have repayment. Prove, on paper at least, that you can generate the revenues to cover your operating costs with enough left over to pay the loan and your living expenses/salary.
COVER THE DOWNSIDE
Most businesses don’t operate exactly as planned. Identify any weaknesses or potential problems in your business and address contingency plans and resources, as well as an exit strategy.
HAVE A STAKE IN THE BUSINESS
With the possible exception of your family, no one is likely to provide 100 percent financing. Why should anyone else take a chance on you if you’re unwilling to invest your own resources?
PUT YOURSELF IN THE LENDER’S POSITION
Lenders want to make loans that will be paid back. They evaluate your personal and business credit history, your ability to repay based on credible financial projections in your business plan, and your collateral, among other things. If you were a lender, would you give your business this loan?
If you application is rejected, don’t give up. This gives you an opportunity to fix whatever was lacking. If you have put an honest, thoughtful effort into your search for financing, people will help you get it. That includes people you may be tempted to blame for not approving your request. Don’t think "rejection" think "constructive criticism."
FRAME OF MIND
Obtaining financing is not easy. Learning how to prepare a business plan and financial projections can be time-consuming and frustrating – but the point is that you are learning. The knowledge you gain in the process will be invaluable to you in the constant refinement that any business undergoes in both the planning and operational stages.