Boosting Your Chances
No matter who your lender is, the lender will be concerned about one overriding factor: the risk that he's taking on by giving you the loan, compared to the return he'll gain by charging you interest. Your entire approach needs to focus on convincing him that you're worth the risk. As a start-up business owner, that's a challenge: Banks, for example, often want to see three years of business financial statements in order to make a decision about how credit-worthy you are.
Lenders often judge you by the five “Cs” of credit: your Capacity to repay the debt; the Capital that you're personally investing in the business; any Collateral that can secure the debt; the Conditions of the loan, such as what you're going to use the money for; and your personal Character.
There are some things that you can do to improve your chances of success, however. And even if you're turned down, don't give up. Learn what you can do to improve your chances, and try again.
The Paperwork
Lenders want to know that you've done your homework and that you have a detailed, practical, and achievable plan in place. That's where your business plan comes in: It should provide all of the information they need to assess your chances of success. This includes the type of business you want to launch, the services or products you'll provide, your competition, your customers, and your financial forecasts. You also need to provide detailed information about how you came up with your start-up funding requirements and where the money will be spent.
As a start-up, you'll also need to provide details about your personal finances including your net worth (your assets minus your liabilities), your current debt loads, and the amount of credit that you have available. (If you have a wallet full of credit cards, for example, a lender will consider you a risky bet even if you're not using them all. The lender will be worried about your ability to repay your debt in case you max out all available credit.)
The Preparation
Rehearse your presentation to the lender so that you're completely comfortable with the information that you'll be presenting and with the way that you'll be presenting it. No doubt you know your numbers by heart by now, but don't rely on memory. Remember that, in large part, you're selling yourself to the lender. The lender has little to go on but your numbers and the way that you come across. If you're unsure of yourself, she'll be unsure of you too. Present yourself as confident and knowledgeable, however, and you'll add credibility to your business plan.
Before you apply for financing, check your personal credit reports. A credit report is available free of charge annually through the major credit bureaus: Equifax, Experian, and TransUnion in the United States, and Equifax and TransUnion in Canada. If the reports show any inaccuracies or problems, you need to know about them before approaching your lender.
The Answer
If you're approved, that's fantastic — but before you celebrate, make sure that you go over all of the terms of the loan. The repayment schedule, interest rates, loan payments, and the situations under which the lender can force you to repay the loan in full immediately need to be reasonable and practical given your financial forecasts.
If you're not approved, take a deep breath and swallow your disappointment. Ask your lender — without being defensive — why the loan was refused and ask if the lender could provide any advice or suggestions about improving your business plan or presentation. The lender might be able to suggest local business development resources and other sources of funding for you. A professional approach at a tough time will impress the lender — and might even be enough to let the company come through for you next time.
