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. Yes, aspirations are essential; however, they aren’t enough to get 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 have a tough time securing financing. It’s not that the founders lack passion — at least in the majority of cases. What they often lack instead is critical information that lenders need to make decisions. Without proper preparation, no potential small business owner can expect to hear a “yes” from a financial institution, no matter how charming the entrepreneur or mind-blowing the dream.

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 won’t secure financing. Neither will a long history of poor personal credit. Founders who aren’t solid personal money managers are more apt to mismanage the ebb and flow of cash from their business. They may even be at a greater likelihood to take funds from the company to cover personal woes — which, of course, can worry lenders.

Of course, a lousy credit score is only one factor that could lead a lender to deny financing. Another concern from the lender’s viewpoint is the entrepreneur who isn’t ready to work 60–70 (or more) hours per week while the business gets up to speed. Founders who expect to merely manage others — and stick to a 9-to-5 work week — typically lose steam when the going gets tough because they haven’t thought through their ideas.

This naturally dovetails into the final reason that lenders say “no”: zero data or planning. Walking into a meeting with a lender without stacks of relevant documents and information is like expecting to be on your team’s starting lineup without attending practices.

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

Yet all is not lost. Entrepreneurs willing to 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 spiel 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 similar products as other banks (including SBA and equipment loans), but with a noticeable twist: We’re a small business in mid-Missouri, just like the small businesses we serve. In other words, we understand what it takes to run a company, and we guide our clients on ways to fine-tune their operations. Our goal is to help people pursue their passions through moments that matter. We want to help our clients improve their lives financially, which includes making appropriate loans to entrepreneurs based on the information they provide.

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