At some point during your life as a small business owner (or an aspiring business owner), you will find yourself sitting across the desk from a small business lender. What if you could read their mind so you knew what to do and say to get that loan? Michael Finnegan, the senior vice president and senior loan and investment officer for Coastal Enterprises Inc., tells us what small business lenders are really thinking as you prepare to ask for a loan.
The requirements for a business loan are much different than a consumer loan. There is no quick application process, so don't expect us to hand over a check after meeting with you for an hour. The process is longer than that, so please adjust your expectations (and time frame) before you come to see us.
The time we spend together is very important. Your original reason for coming to us was to ask for money, but the loan is really a by-product of our conversations. Talk about what you want to do and convince us that it can work. We need to feel confident in a wide range of areas — character, collateral, capital — to do business together.
You need to be able to articulate your mission, marketing strategy, competitive advantage and business plan. Tell us what you are trying to do with your business and where you want to go. Convince us that we should work together. We're better advocates during the loan process if we're interested and invested in you and your business.
Banks lend money to people, not businesses. We have a pretty good idea of who will make it in the high-stress world of business ownership. Show us that you have the characteristics needed to be a successful entrepreneur. We need to know that you will function well in a small business environment. A lot of people can't handle the inconsistent (or non-existent) paychecks, long work hours and high anxiety that comes with owning their own business. We need to know that you have the strength of character to handle all that the small business world will throw your way. Show us that you are suited for this new world as an entrepreneur.
We see a lot of dreamers who have a great vision but don't understand the financial decisions that would make a business successful. Do some homework before you come to see us. I've been in this business a long time and have seen a lot of numbers, so don't try to bluff your way through a financial discussion. Be able to talk about the provisions of your buy/sell agreement. Make sure you are articulate about your business cycle — we need to know that you understand cash conversion and asset conversion. A big red flag starts waving if you can't intelligently discuss your cash flow statement. Our job is to lend responsibly, but we can't do this with someone who doesn't understand the finances that drive their business.
While this may be your first time talking to a lender, we work with small business owners like yourself every day. We've seen a lot of businesses come and go and we know what tends to work. For example, restaurants have a high failure rate, so we will probably warn you that the odds are stacked against you if you're asking for money to open a new restaurant. Expect some tough love as we discuss your plans — we want to know that you have thought this through before either of us puts money on the line.
The great thing about being a business lender is that we've made every mistake in the book. Really listen to our advice, especially if we think there are flaws to your business plan. Sometimes the best thing we can do is prevent you from doing something stupid with your money (and ours). We have enough experience to see the flaws in your plan. If we think you need it, we will suggest that you see a business counselor to work out these bugs before you meet with us again. We know about free business resources that are available to you, so we'll try to steer you in the right direction if you need help. Our wealth of experience can be more important than the loan you want.
Small business lenders want to make sure that both the business owner and the bank know the risks and rewards associated with the loan before any money changes hands. Having a good relationship with your business lender can help your company through startup and expansion. Let them help you succeed.