Sooner or later just about any business, whether start-up or well-established, needs an infusion of cash for working capital, equipment or expansion. For small businesses the owner may be able to dip into his or her personal savings, or friends may be able to lend the needed money. Usually, however, the owner will have to look to outside sources for financing." Typically that means banks or credit unions.

 

There are literally endless kinds of loans under various names -- short- and long-term, SBA, secured and unsecured, lines of credit, letters of credit, installment loans and different types of mortgages. Many owners spend too much time trying to determine what's available at particular banks; then they try to imagine whether or not the programs fit their need. We suggest that this historical approach is responsible for the feeling that banks will only lend money to those that do not need it. In fact, one should follow another path to achieving their financing.

 

First, management should fully understand their businesses' needs.

 

Second, management should understand the business risk of the business for all parties: customers, bank, trade creditors, employees, and owners/stockholders.

 

Third, one should have a complete business plan to communicate their understanding.

 

It is important to understand the bank's perspective when you are asking them for money. By this understanding, you can recognize risk and suggest items that bring balance to the risk. "Lenders reject loan requests when they cannot understand the risk or they believe the borrower does not understand the risk. Also, certain risk is acceptable to entrepreneurs however is inappropriate for a bank.

 

Many entrepreneurs use a financial consultant to assist in risk analysis and presentation formats. Others use them for assistance in understanding how bank's think. That way one does not waste time on false starts, or in pursuing a relationship with an otherwise good bank, but one who does not like the type of risk present in the entrepreneur's business.

 

 

Bob Stackhouse

Preferred Financial Consulting

© 2005

Have a plan,

 before applying for a bank loan

To contact us:

Preferred Financial Consulting or

Preferred SBA Packaging

8863 Greenback Lane #210

Orangevale, CA 95662