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Most interesting is that the shortest description of all 12 items is the one that requires more work to prepare than all other 11 documents combined. The business plan should have well documented market research regarding the product, target customers, target geographic market, pricing policy, and a promotional strategy designed to insure you can give customers a reason to consider your product or service over the competition. The capital investment in your operation must be delicately balanced to insure you meet customer demands. Invest too little and you may lose sales opportunities. Invest too heavily and the actual sales may not be sufficient to cover your expenses.
It is important to note the list of documents can vary from one lender to the next. Of course there are certain items you cannot provide if you represent a start-up venture. And, in that case, your business plan becomes even more critical.
Now let us consider the intangible items the banker has in mind. To begin there is you. And, in the eyes of most every lender, if they are not impressed with your ability to direct and insure the profitability of your proposal, it won't matter how marketable your plan may be. It's only as good as you.
Be certain to include the credentials and experience of all owners and key personnel in the business plan. If you and any key personnel have little or no experience related to the product or service offered, your chances of getting the loan are hindered.
One last, but very tangible item is the amount of personal investment you and all other owners will put into the proposal. Typically, if the company does not finance 30% to 50% of the loan package many lenders simply do not consider the application. There are exceptions, but this is a typical investment ratio. In the case of a start-up venture many lenders expect you to defer personal compensation until positive and cumulative cash flow occur sufficiently to insure payment of all liabilities in a timely fashion and some accumulation of cash on hand in the bank. In the eyes of the lender you should be prepared to make a personal financial sacrifice if it is necessary to prevent default on the loan.
There is one concluding note on which I'll not mince words. Many traditional commercial lenders do not like to finance start-ups. Several bankers with whom I have associated have stated it to me time and time again, off the record. In that case you have to provide all requested documentation, have an excellent personal credit history, meet or exceed the lender's expectations of personal investment in the start-up, have education and/or experience which insures your command of the product or service offered, be prepared to defer personal compensation, have a financially sound personal financial statement, and be prepared to waive protection of personal assets, even if the loan includes the purchase of fixed assets for collateral.
Applying for a loan is demanding. Securing the loan is much more difficult. But know what the banker expects, deliver it when asked and you won't be guilty of failing to be prepared.
© 2000, Carroll Stephen Windhaus
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