Finding the money to start or expand your business may seem daunting, overwhelming and downright scary. But it doesn’t have to be. Keep in mind that lenders want to lend money and they need to make deals.
Here are some dos and don’ts to help you get the financing you need for your business:
Do prepare a good business plan
You do not have to have a completed business plan when you first meet with lenders. But at some point it’s likely they will ask for a business plan. It’s not because they want to make extra work for you. They ask because they need to feel confident you understand your business and you will have the cash flow necessary to service the debt.
Your business plan also will help you determine the best course for your business and how much money you need to borrow to get there.
Your cash flow projections should be your best estimate of your income and expenses. Lenders like to see how you arrived at those estimates, so be ready to explain how you came up with the numbers.
If your business is seasonal, your projections should reflect that and should be consistent with what you said you were going to do in your business plan. For example, if you talk about a marketing strategy that will include building a website and paying for advertising, that expense should be reflected in your cash flow.
It’s not out of the question for a lender to tailor your repayment to your seasonal cash flow or suggest you need more money than you are asking for based on your business plan.
A well-thought-out and detailed business plan makes lenders happy and improves your chances of getting the loan.
Do be willing to put up collateral
The quickest way to turn off a lender is to say, “I don’t want to put anything I own up for collateral.” What lenders hear is that you want them to take all the risk and you aren’t really sure this business will work.
What they want to hear is how much you believe in this business. You believe in it enough to pledge whatever you have because you are confident you will be able to repay the loan and none of your assets will ever have to be liquidated anyway.
Be willing to do whatever it takes and show your passion.
Do not mention a “second set of books”
This one is for existing businesses. When a lender asks you to provide financial statements and tax returns from prior years, never say, “Those numbers aren’t a true reflection of how much money we made. We have a second set of books we can show you.”
You just killed the deal. Why? Because you admitted that you cheated on your taxes. Lenders frown on that sort of thing.
When making a loan to an existing business or to someone who wants to purchase an existing business, lenders will require copies of tax returns. That is the only information they can go on when considering the historical profitability of your business.
Take all the legit deductions you can but be sure to claim every last dollar of income. You’ll come out ahead in the end.
Borrowing money is about building a relationship with your lender. Lenders want to work with businesses that will work with them. Follow these tips to improve your chances of your lender saying, “You’re approved.”