If you have been pursuing a business bank loan (term loan or line of credit) and have been turned down at least once if not more, ask yourself the following questions:
- “Did we approach someone with signature authority or did we meet with a low level employee who has to fight for every dollar above $25,000 that he or she requests?
- “Did we dress professionally and project confidence or did we show up in shorts and appear surprised by all the questions asked of us?
- “Did we discuss our intention to build a long-term relationship with a bank we can grow with or did we say we were shopping around for the best rates?
- “Did we provide a loan package – an executive summary and our financial statements – or did we jot some information on a post-it note?"
If your response was the first option for each question, then your company just may not be at the stage needed to access bank financing for your business. It does not mean that there is no hope. It just means you will likely have to pursue one of the myriad other types of financing available for small business owners with a short or spotty financial track record. Or you just may need to shift your focus to community or specialty banks. Refer to some of the blog posts on the Small Business Finance Forum blog for what types of banks may get you to yes and for alternative capital sources.
If you responded yes to the second option for each question, you must work on your packaging and preparation before you approach another bank or any other financing source. If you are not prepared, if you cannot provide a modicum of a financial statement or other finance-related information, and if you cannot adequately describe your business and market in words, then you are extremely unprepared to pursue bank financing. In this case, you will likely continue to be turned down by banks and by many of the alternative financing sources.
A bank does not want to see a business plan when you make your initial and subsequent requests for a loan. Instead, they want to see a very condensed, highly relevant synopsis of the business plan called the Executive Summary. This is typically three to five pages long and includes the following:
1) General overview of the business;
2) Industry overview;
3) Market overview including competitive advantage;
4) Management team including board of advisors;
5) Growth plan for the business;
6) Financing need and why;
7) A chart of sources and uses of funds.
Each section should be about one to two paragraphs each. Attached to the Executive Summary should be historical financials for the past three years, audited or reviewed. If the financials have not been audited or reviewed by a CPA – and the overwhelming majority of small business financials have not – then a copy of the business tax returns for the prior three years are absolutely necessary.
The decision makers at banks (typically, vice president level and above or loan committees comprised of these individuals) do not have time to read a 30-40 page business plan. They do have time to read an Executive Summary that provides them with the relevant information from the business plan showing that the applying company is a good risk. An Executive Summary is easy to pass around to others on the loan committee to review or to share with another decision maker who has questions. Bankers know how to read financials. But your Executive Summary provides the background on why those financials are what they are and how likely they are to continue.
About the Author:
Tiffany C. Wright is the president of Toca Family Business Services, a C-level interim management provider and strategic advisory firm, and the author of “Solving the Financial Equation: Financing Solutions for Small Businesses", available on Amazon and “Help! I Need Money for My Business Now!", available at http://www.cash4impact.com. Both books provide overviews on business financing alternatives and the how-tos to obtain financing. Over the last six years, Ms. Wright has helped companies obtain over $31 million in financing and a similar sum in contracts and purchase orders. Ms. Wright has a BS in Engineering and an MBA in Finance and Entrepreneurial Management from the Wharton School of Business, Univ. of Penn. She volunteers, sits on non-profit boards, and often speaks at business events.