For a business mogul to be successful their businesses are usually financed by banks, which can provide small to moderate amounts of capital at market costs. They don’t want control at least beyond the control exerted in the covenants of a loan document. And they don’t want ownership.
Bankers make loans, not investments, and as a general rule, they don’t want to wind up owning your company. When you apply for a loan, your bank loan application should be complete but when you don’t how to write it in a way that will impress banks then you’ve got a big problem
1. Cash flow.
One of the most convincing things you can show a banker is the existence of a strong, well-documented flow of cash that will be more than adequate to repay a loan’s scheduled principal and interTest. You’ll need more than a projection of future cash flow, by the way. Most bankers will want to see cash flow statements as well as balance sheets and income statements for the past three or so years. And don’t forget your tax returns for the same period.
If you’re just starting out in business or dealing with a banker you don’t know well, you’re unlikely to be able to borrow from a bank without collateral. Collateral is just something the bank can seize and sell to get back some or all of the money you’ve borrowed in the event that everything goes wrong and you can’t pay it back with profits from operations. It may consist of machinery, equipment, inventory or, all too often, the equity you own in your home.
They provide an added layer of protection for lenders. If your own capacity for taking on additional debt is shaky, a co-signer (who’s essentially lending you their creditworthiness) may make the difference.
4. Marketing plans.
More than ever before, bankers are taking a closer look at the marketing plans embedded in business plans. Strong competitors, price wars, me-too products, the fickle habits of the buying public and other market-related risks must be addressed. Your banker (and most other investors) have to know that you recognize these risks and have well-thought-out ways to deal with them. Besides, it’s the cash flow from operations that pays off bank loans.
Bankers like to stress the personal aspect of their services. Many state that they’re interested in making loans based on a borrower’s character as well as their financial strength. In fact, the borrower’s track record and management ability are concerns for bankers evaluating a loan application. If you can show you’ve run one or more other companies successfully, it will increase your chances of landing a loan to get a startup going.
Bank financing is most appropriate for up-and-running enterprises that can show adequate cash flow and collateral to service and secure the loan. Bankers are less likely to provide startup money to turn a concept into a business, and they’re even less likely to put up seed money to prove a concept unless you have a track record of launching previous businesses with successful results.