Once you have a written business plan, you are now ready to approach the money markets to try to finance your business.

Developing your loan proposal

Your loan proposal must answer the following questions:

• Who are you?
• How much do you need?
• How are you going to pay it back?
• What happens if you can't pay it back?

Elements of your loan proposal

Generally, the loan proposal is comprised of the following elements:

• Summary: Comes first; written last.
  This should be clear, concise, accurate and inviting. You want to summarize how the proposed loan will be used, how it will be repaid and how it will benefit your business. Remember, that you are competing with many others, so you'll also want to point out some of the distinguishing features of your business.
• Top management profiles:
  The key issue here is who are you? Be prepared to come under close scrutiny. You will need resumes as well as a summary of experience, qualifications and credentials for all owners and key members of your management team.
• Business description:
  You don't need to repeat all of the information contained in your business plan, but you do need to present a solid description of your business. Include a brief overview of the history of your business, plus a summary of current activities. Make sure you clearly demonstrate that you understand your markets and industry (current trends and risks). Include literature showing your products or services. It is also helpful to include letters from suppliers, customers and other business references.
• Projections:
  Include projected income statements and cash flow statements for two to three years. Your assumptions should be clearly stated and realistic. Generally, you don't need to show "best case" and "worst case" unless the banker asks you to do so. But do be prepared to answer questions (in quantifiable terms) about what happens if some of your assumptions don't come true. For example, if you anticipate obtaining a major new contract or customer as a result of newly expanded capacity, can you estimate the impact on your income statement if that customer decides to take her business elsewhere?
• Financial Statements:
  The loan package must include both business and personal financial statements. Make sure that you fully understand the "story" that your financial statements tell. Be assured that your banker will fully analyze your historical financial statements and calculate all the ratios. So, prepare in advance and point out any significant trends in an introductory paragraph.
• Purpose of the loan:
  Present a detailed statement of how you will use the loan proceeds.. Don't forget to include the proceeds of the loan in your cash flow projections (and the interest in your projected income statement).
• Amount:
  Remember, that you are offering the bank a deal that will make them money -- you are not asking for an "allowance". The attitude you should take is to ask, "how much money do you need, and how much will they lend?" and not, "will they lend it?"
• Repayment plans:
  You will have to make some assumptions about the terms of the loan in your proposal. (Obviously, this is necessary to prepare the initial financial projections.) In the first package, you will propose the terms that you want, but ultimately this will be a point that will be negotiated with the bank. The bank will consider a number of factors as they assess the overall risk of the loan and this will impact the repayment terms they are willing to give you. 

Selecting the bank

You may already have a relationship with a bank, and this is generally the logical first choice for borrowing money. But whether this is your first loan, or you are borrowing additional money, you should consider several points before selecting the bank.

Although you may need money, you should be in the driver's seat when it comes to choosing the bankers or partners you want to deal with. Make sure the bank is sincerely interested in your business and will provide you with the services you need. You should also look for a banker with whom you feel you can develop a good ongoing relationship and that has experience with similar businesses. Keep in mind the value of your business to the community and what its future deposits could mean for the bank.

Key questions to ask bankers include the following:

• Do they have an industry specialty related to yours?
• What is the average size of their borrowers?
• What are their professional backgrounds, especially in terms of whether they are commercial or consumer lenders?
• How long have they been in these positions?

Do they have the level of lending authority you need

Whether you patronize a large commercial bank or a small community bank will depend on your needs. Major banks tend to offer a wider range of services and locations, which may be important if have the need for a variety of financial products and services. Community banks, on the other hand, are smaller, meaning that the banker you deal with daily might be able to make your financing decision personally or get it through the bank hierarchy quicker.

Presenting your loan proposal

Okay, now your loan package is prepared and its time to get ready to present your proposal. Before you go to the bank it is a good idea to role play with someone you trust. This is not the sort of presentation that you make every day, and this can help ensure that you are comfortable discussing all the material in your loan package, and have considered all the questions your banker might ask in the initial interview. If you have a question about how to present your loan, now might be a good time to visit the Info Exchange - discussion forum on lending and seek the advice of an expert or another business owner that has been through this before.

Before you approach a bank you should:

• Have comprehensive written documentation ready.
• Know your numbers inside and out.
• Know what collateral you can offer.
• Be prepared to sell yourself.

Handle the meeting professionally -- make an appointment, show up on time and have a business demeanor throughout the meeting. You should tell a prospective banker what benefit your business brings to the bank in terms of average balances in checking accounts, savings accounts, and present and future financial needs. You should also ask them questions to see if you think they are the right people to handle your account.

After you present your loan proposal, ask the banker what can be expected in terms of a response time, or when they will request additional information. Obviously, the request won't be approved in the initial meeting. But if you've done your homework, you will already have a good idea of whether or not your loan is likely to be approved.

If your loan is approved:

(besides celebrate) make sure that you:
Thoroughly review all loan documents and understand before signing. Consult with your lawyer or accountant if you have any questions.

• Get documents in on time -- frequently there are a number of documents that cannot be finalized until after the loan is approved and closed. Keep up that good impression the bank has of you by promptly responding to requests for additional information, documents, signatures, etc.
• Maintain close contact with your loan officer. It is a good idea to give her progress reports -- the bank now has a vested interest in your success and will want to be kept current.
• Communicate problems. Bankers, don't like surprises, particularly if the news is bad. So, make sure they are one of the first contacted if you encounter any problems.

Once your banker makes a loan to you, he or she has a vested interest in your business success. If you prosper, the bank prospers. If you fail, the loan they approved is not going to be paid.

If your loan is not approved:

• Don't despair.
• A "no" today doesn't necessarily mean no forever.
• Don't take it personally.
• Be gracious.
• Ask the banker to explain "why" your loan was not approved.
• Don't get defensive, seek information so that your next proposal addresses and corrects any deficiencies in the current application

Where to turn for help:

There are a number of resources available to help you prepare your loan proposal, including SBA-affiliated Women's Business Development Centers, Small Business Development Corporations, and Service Corps of Retired Executives (SCORE).

What to do when no one will lend you money:

There may be times when knowing the money markets, as well as preparation, presentation, pluck and persistence just don't seem to work. The key to overcoming this financial obstacle is not to get bitter: get resourceful. Remember there is more than one way to skin a cat.

If you have a viable business idea you should be able to find funding... as long as you have done your homework and developed a written business plan.

Other owners have raised money from friends by making attractive interest rate offers to friends and acquaintances for loans.The secret is to prepare yourself -- before you implement that growth strategy. Your business plan will provide you with a way to look, before you leap. 

(Women's Economic Self-Sufficiency Team, Albuquerque, NM, and
Charlotte Taylor, Venture Concepts, in association with New Jersey Association of Women Business Owners, Inc., 5/97.)