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Former head of the Joint Chiefs and Secretary of State, General Colin Powell said, “There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”
I’m convinced this is particularly true when seeking capital to finance a small business. One of the top three reasons small businesses fail can be attributed to an inability to adequately capitalize. In other words, a lack of adequate cashflow to fund working capital and fuel business growth.
If your small business happens to be a very sexy tech company that can scale up exponential revenue growth with the influx of a little cash, you’ll likely have venture capitalists and angel investors knocking on your door anxious to give you money. If you happen to own a lucrative cash cow of a business, you can probably fund growth and expansion through cash flow. Unfortunately, most small businesses don’t fit in either of those categories and rely on debt to occasionally augment cashflow for working capital and fund expansion.
Understanding the need to obtain financing through debt requires that small business owners need to understand how bankers and other lenders will look at your business when you approach them for a loan. We recently talked, in general terms, about what to do after the bank says “no.” Today, we’re going to get a little more specific. Some of what I’m going to suggest will likely be more applicable when speaking with a banker, but whether or not the particular lender you speak with today needs this information, it’s likely the lender you speak with tomorrow will.
Here is some specific preparation you’ll want to make before you start looking for a loan. Some of this will likely seem pretty obvious, but there might be a few surprises. Most of this advice is the result of speaking to lenders, hard lessons learned by experience, and conversation about this topic with my colleagues.
As you can see by the above list, this isn’t a shortcut to small business financing by any means, but it is a secret many small business owners don’t know. The best case scenario is sitting across from the banker (or other lender) armed with the information you’ll need get a quick approval and a loan. Worst case is a greater understanding of your business and where you need to spend some extra attention to help you business grow and thrive. I see this exercise as good for your business regardless of the immediate outcome.
The other day we talked about what you should do if the bank says “No.” These suggestions are by no means a guarantee you’ll get the loan you’re looking for, but knowing what the lenders want to see gives you a leg up and will improve the odds if you have the right answers.
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Small business evangelist and veteran of over 30 years in the trenches of Main Street business, Ty makes small business financing and trends accessible in common sense language devoid of the jargon.
Blog
9 min read • Aug 15, 2022