It’s no secret that securing bank funding for your startup is difficult these days – but it’s not impossible.
Give yourself better odds with these 5 simple
Startup tips:
Write a clear and convincing business plan.
Business owners must build a strategy from the very beginning around being “lendable,” so a business plan helps lay that proper foundation. Focus especially on the financial estimates and offer well-researched documentation for those estimates.
In addition, be sure to illustrate in your plan how you will generate revenue, how
much you’ll generate and how long it will take to get to positive cash flows. (Side tip: you may
want to have a CPA look over your financials beforehand).
Boost your credit rating.
A solid credit score lends legitimacy to your request and shows you’re less of a financial risk to the bank. They’ll want to see that you have a history of paying bills on time, as well as your history of minimizing outstanding debt. Have a less than desirable credit score?
Seek out smaller, more local banks, since large banks typically are pickier as to the kinds of businesses they want to work with. Smaller ones may be more forgiving of new businesses and may have less stringent credit requirements for opening accounts and lines of credit.
Launch your business in a solid industry.
Certain industries, such as food service and apparel,are considered extremely risky by potential lenders. Thus, if you are determined to get bank funding, consider an industry that doesn’t depend on fluctuating resources (such as oil prices) and has a relatively large profit margin.
Once selecting that industry, be sure to demonstrate your experience in it: offer real, measurable examples of your expertise in your chosen industry or of your experience of running successful businesses. Banks back those with a track record of success, so you’ll have to convince them you have the skill set, drive and experience to make their lending decision a successful one.
Owner’s equity.
If you expect lenders to put their “skin in the game,” they’re going to expect
you to do the same. As a general rule, you should personally invest 20% of the total projected
loan request. Your willingness to risk a sizeable portion of your own capital (and not just capital from their bank loans) shows your commitment to the venture.
Relationships are key.
Ultimately, securing a bank loan is about building a relationship with your bank, and if done correctly, your banker can become your biggest ally. If the banker knows you, your business operations and that you have good employees and a stable customer base, they
will be more likely to go out on a limb for you.
Having a good relationship with your bank can
make running your business a lot easier, so don’t underestimate it!
