Securing financing is key to any business, especially a business that is growing or plans to grow. However, the minefield of applying for a loan is daunting even for seasoned business owners.
Small business owners say that banks aren’t lending. A recent survey by the Federal Reserve Bank of New York found that only 14 percent of small businesses received the loan amount the company applied for.
Banks on the other hand say they want to loan, but have trouble finding creditworthy applicants. Banks make money by lending so it makes sense they would want to loan. The difficulty most businesses face is bridging that gap between what the company needs and what the bank wants. How does a business find the magic formula that will encourage a bank to loosen the purse strings and lend money?
It turns out the formula isn’t so magic, but it does take some planning and preparation. Here’s some key business advice on how to prepare a compelling loan package and get the loan you need to grow your business profitably.
Have a Strong Business Plan – Banks may want to loan money, but they also want to minimize risks. A robust, well-conceived business plan will go a long way to giving the bank confidence that you are prepared to run the business in a solid fashion, thereby reducing risk.
Know Your Numbers – Bankers love numbers, and well they should, because most of their decisions are based on them. Have a solid grasp on your cash flow and financial projections. Demonstrate to the bank that you know your business well enough to gain their trust.
Take a Long Hard Look – Don’t wait for the bank to find weak points in your financial picture. Before going to the bank, invest the time to look at your business plan, your financials, and your budget. Think about how you can improve your plan or make adjustments so your business is more creditworthy.
Build a Relationship – Banks like a proven track record. If you already have a relationship with a bank, this can be a big contributor to getting a loan approved. In fact, the survey by the Federal Reserve of New York showed that 75 percent of businesses approved for a loan had a relationship with the bank. If you don’t already have a relationship with a bank, start building one now to prepare for future banking needs.
Remember, running a business successfully does not need to be complicated. Keep it simple!
For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.
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Manny Skevofilax is a consultant and speaker that assists his clients with successfully navigating the challenges of growing their businesses profitably. Since 2003, Manny helps businesses to enhance their financial results by using his experience in strategic planning, financial statement analysis, operations, and team-building. His consulting firm, PORTAL CFO Consulting, Inc., has attracted clients from diverse industries in the United States and abroad.
Manny can be reached at 410-808-3441 or via email at email@example.com.