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"...if they qualify."
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"...if they qualify."
As a member of the Ohio SBDC team, I don’t work in a silo. I work with an amazing team of people who are true experts in their fields and have an undying passion to help others achieve their business goals. So sometimes I think it’s good to share the wealth; to share the thoughts and experiences of some phenomenal individuals with you and opportunity to be heard with them. Here, be enlightened by Michael Bowers*, Regional Director of the Ohio Small Business Development Center at Columbus State Community College. Michael’s 10 year career in banking and financial services, 3 years experience as the Executive Director of the Columbus Venture Network, leading the organization’s efforts to increase the level of equity financing available to early stage businesses and 8 years as the current Regional Director of the Ohio SBDC helping prepare entrepreneurs to seek and obtain equity financing will provide you will invaluable insight into understanding how to fulfill your business’ funding needs. This is a recent post from Michael’s Ideas to Deals*: The Innovation of Small Business and Entrepreneurship blog…
I think that all banks across the country have gotten together to come up with a common response to the question 'Are you lending to small businesses?' The response I have heard in almost every instance is 'We're lending if the businesses qualify.' What?!?
The last two years have been a perfect storm of tightened credit standards and the economy negatively impacting small business P&L statements. The result… fewer businesses 'qualifying' for credit.
Here are a few things you MUST know if you are going to be able to break this credit strangle hold.
- Know Yourself: It is critical that you know your business' financial situation. Get your financial statements up to date and really know what the situation is with your business. Look at your cost structure and make sure you running lean and efficiently. Know that your cash flow statement, speaks the loudest to bankers, you need to understand that inside and out.
- Know Your Needs: Don't go in with a blanket loan request. A key to seeking financing is the 'Source and Use of Funds Statement'. You need to breakdown your needs (uses) and have a corresponding plan to address those needs (sources). Also, know that banks lend for stuff. Expect to get push back on working capital requests. Expect questions and know how to address them before they are asked.
- Know Your Future: What is the plan going forward? Have you developed a strategic plan that includes a strong SWOT (strengths, weaknesses, opportunities, threats) analysis? This is critical to paint the picture of the future for your business. More than likely things have been rough the past year or two so you need to focus not so much on the past but the future. You need to show how the requested financing will positively impact your financials going forward. I would focus on top line growth and cash flow.
- Know Your Bank: You need to know if your bank is 'really' making small business loans. Contact local entrepreneurial support agencies like the SBDC or SCORE. They deal with banks all the time and they know who the players are and who the pretenders are. Also, maintain a relationship with various people at your bank. Talk to them about how things are going. Informal 'How's business' inquiries will often yield more info than you would expect.
- Know Your Banker: Now I'm talking about the actual person you are applying to. You need to make them look good to their supervisors. Give them a deal they can understand and get behind. Don't make it complicated to understand. Be clear how you are going to deploy the funds and how the funds are going to make your business successful (and able to pay the bank back). Your banker needs to be your advocate. Try to make your request as close to the decision maker's level as possible. This will reduce the number of people that need to understand your business and deal in order to get an approval.
I know it is tough out there. I am hearing that bank credit won't get back to pre-recession levels until 2011. You don't need to wait that long. Know how to play the game and work within the banking system and you 'will qualify'.
*Note: Hyperlink directs reader to non-government Web site.