July 22, 2021

Thank goodness for entrepreneurial dreams. Without them, the world would cease to develop as quickly: We might still be carrying buggy whips or copying books with quill pens.

Aspirations are essential, but they generally aren’t enough to carry a dream from idea to market. That’s where banks and other financial lenders come into the picture.

Here’s the snag, though: startups can struggle to secure financing. It’s not that the founders lack passion (at least in the majority of cases). Instead, they often lack the critical information that lenders need to make decisions. Without proper preparation, no aspiring small business owner can expect to hear a “yes” from a financial institution — no matter how charming the entrepreneur or mind-blowing the dream.

The fact is that many of these entrepreneurs don’t know how to prepare for a small business loan. A lot of research, financial forecasting, and planning is necessary before an entrepreneur can confidently walk into a bank hoping to qualify for a small business loan. So if you think you are ready to apply for a small business loan, you might just want to make sure all your t’s are crossed and i’s are dotted.

Simple Mistakes Entrepreneurs Make When Seeking Loans

Is it possible to become blinded by an invention or concept? Lenders see this happen almost every day. Truly, entrepreneurs can be almost too enthusiastic about their products or services, leading them to assume desire is good enough for a lender.

Unfortunately, it isn’t.

While optimism and energy can be contagious, those characteristics alone won’t qualify you for a small business loan. Neither will a long history of poor personal credit. Founders who aren’t skilled at managing their personal finances are more apt to mismanage the ebb and flow of cash from their businesses. They may even be at a greater likelihood to take funds from the company to cover personal woes — which, of course, can worry lenders.

But a lousy credit score is only one factor that could cause a lender to deny financing. Another concern from the lender’s viewpoint is the entrepreneur who isn’t ready to work 60 to 70 hours (or more) per week while the business gets up to speed. Founders who expect to merely manage others — and stick to a 9-to-5 workweek — typically lose steam when the going gets tough.

This naturally dovetails into the final reason many lenders say “no”: minimal data or planning. Walking into a meeting with a lender without relevant documents and information is like expecting to be on your team’s starting lineup after skipping practice. Lenders need to be impressed and have a strong degree of security in handing over financing to entrepreneurs. Therefore, when applying for a small business loan, prepare spreadsheets, rehearse FAQs, and deliver information that supports your idea as being a profitable investment.

Set Yourself Up for Success When Applying For a Small Business Loan

How can lenders feel comfortable issuing a commercial loan if a borrower cannot produce collateral, doesn’t have collateral, has no track record of paying back previous loans, or offers a sketchy credit history? The short answer: They can’t.

Yet, all is not lost. Entrepreneurs who make just a few changes in the way they prepare for lender meetings can increase their chances of securing a loan.

1. Bring specifics to the meeting

Costs. Names. Distributors. Numbers. Whatever counts should be available during every lender meeting. The more specific the information, the better. Also, make sure you rehearse your pitch instead of winging it. A clear, well-articulated presentation shows listeners you’re serious.

2. Set realistic revenue goals

You might hope for stellar sales out of the gate but hold back on your sky-high expectations. Having a superior product or service does not necessarily translate to phenomenal sales. Use realistic figures to show lenders your business idea will be profitable using conservative revenue forecasts.

3. View criticism objectively

It may feel like lenders sound harsh or skeptical. After all, it is your baby, and hard to believe that someone would not think it’s amazing. However, they are rarely being critical of the entrepreneur. They are merely expressing concerns that diving into a partnership with a founder may not be a wise decision — yet. Good lenders will provide suggestions as to what the founder needs to do for improving her plan. This is especially true if the borrower has no business plan to show. The best business plans are created over months or even years, so don’t prepare one the night before and hope it “flies.”

4. Know why you’re starting a business

When new entrepreneurs come to The Callaway Bank for personalized financing options, we often like to ask why they want to quit a comfortable, predictable W-2 job to pursue a career path with no discernible upfront income. Those who can explain their willingness to take a leap of faith (not to mention back up their goals sensibly and rationally) always make stronger first impressions than those who can’t.

The Callaway Bank offers many of the same products as other banks, but with a noticeable twist: We’re a small business in mid-Missouri, just like the small businesses we serve. We understand what it takes to apply for a small business loan and successfully run a company — so we aim to guide our clients on the best ways to fine-tune their own operations. Our purpose is to improve the financial lives of our customers, and we are happy to do whatever we can to help them achieve their goals — including providing loans to help entrepreneurs get their businesses off the ground.

Determined, well-prepared founders who arrive at commercial loan meetings armed with objective evidence are ahead of the game before the discussion even begins.

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Need help with a small business loan? We’re here to help! Speak with one of our friendly and experienced commercial lending specialists today.

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