Editor’s note: This is a guest post by: Shad Atkinson, Sr. Loan Advisor at Lendio.com, which is a free online company helping small business owners find small businesses loans.
Getting rejected for a loan is demoralizing. And there’s nothing worse than sitting on a great business idea that you can’t fund. Or maybe you know how to boost the sales of your existing business, but you just can’t get the extra cash flow to execute your plan. You might think today’s business bankers are your biggest antagonists.
But here’s the truth: Seeing your business from the eyes of a banker might actually help your business.
3 Quick Glimpses into the Minds of Today’s Business Bankers:
1) Bottom line, business bankers are running a business
A banker’s inventory is cash. Their customers are other business owners. And their bottom line is getting a return on their investments, which all equal profits. Business bankers lend money to get profits.
“Bankers are sophisticated businessmen, and in fact most bankers work for a small business and in a small office environment: the community bank.” – Bob Coleman
That’s it. Profits. Bankers get their profits through upfront fees and the interest off of your loan. If things go south, they want an escape plan, which is something that will help them, in the least, to break even.
Bankers create that escape plan by evaluating the worth of your assets. However, bankers don’t determine the value of your assets solely by the assets’ appraised value. The true value of your assets is the value that moves that asset off the shelf. The true value of your asset is how much someone is willing to pay for that asset today.
For you, this means two things:
First, make sure you know the true value of your assets. Second, know that when you pitch your business to a business banker for a loan, they won’t tend to lend you more than the true value of your assets, which is what your assets can be sold for today.
2) Business bankers hate business plans (okay – not really)
Bankers want to see business performance, not business plans. Are people giving you cash for your products? Bingo! For a business banker, that speaks volumes louder than any business plan.
In a business plan, bankers don’t want to see “how many one-and-one-half baths are in houses in a three-mile concentric circle,” says Bob Coleman in his book “Money Money Everywhere But Not a Drop for Main Street.” In a good business plan, bankers want to know what’s so special about your product.
I don’t know one entrepreneur who wrote a business plan that hit the numbers one or two years out. You might as well spend your time trying to write the next great vampire novel.” – Bob Coleman
This is what you do:
Tell the business bankers what will make customers come into your store and leave with less cash in their pockets.
If you’re writing a business plan for a startup restaurant, tell the bankers how many cars are entering the parking lot, let them know the amount of people eating in the area, and outline every competitor. Tell the banker about your competitor’s products and financial situations. Show the banker how you’re going to compete.
Think of a good business plan more as a foundation for a great marketing plan. Show how your business is going to outperform the competition.
3) Business Bankers Solicit Experts - They’re not just making guesses
Information mitigates bad decisions. When it comes to an evaluation of your business and products to determine if you qualify for a loan, today’s business bankers don’t make guesses. They recruit experts to help them evaluate your product, your location, the history of that location, your business model, and possibly hundreds of other variables.
Consulting with experts help bankers make the best decisions, which is what keeps them around for the long run.
“The old-school guys constantly search for knowledge to make sure they know what they have so they don’t make bad decisions.” – Bob Coleman
What this means for you – Do your homework!
If you haven’t done your homework surrounding your business idea or model, you won’t get a loan after your banker does your homework for you. Be smart. Get the right information. It’s your business. You need to know everything surrounding it before applying for a loan. Be the business expert, not just the industry expert.