It’s no secret that every business, small or large, needs funding in order to operate. Unfortunately it’s getting tougher and tougher for the average small business owner to secure a bank loan. In fact, 43% of small business owners were denied funding at least once over the last four years. Worse yet, one in three businesses had their existing credit lines slashed and one in ten had loans called in early.
Given the economic uncertainties faced by small businesses, it’s likely that bank financing will remain scarce. Nevertheless, it is still possible to get a bank loan...you might just need to work harder.
Banks, credit unions, and investors are looking for the same thing – a return of capital and a return on capital. The only difference is that lending organizations have limited upside (only the return of capital plus pre-defined interest) whereas investors can participate in the upside (return on capital is theoretically unlimited). Both carry the downside risk of not being paid back.
Consequently, the best advice is to help them understand how your company has limited the downside (“de-risked the transaction”, in investor-speak) and offer an attractive return on the upside. To do this, we recommend you pursue three paths:
1) Focus on your best opportunities and execute flawlessly.
2) Make sure your financial reports are organized, accurate, and complete.
3) Craft a concise storyline that highlights your opportunities and how you will utilize the investment.
Let’s discuss each one of these in more detail. A critical function that most small business owners fail to create is a clearly articulated strategy for where they want to take their business. It doesn’t have to be complicated. You just need to define what you are trying to achieve and how you expect to deliver on that strategic objective. For example, your company – XYZ, LLC - will be the city’s best dry cleaner. We will deliver on this objective by guaranteeing flawless cleaning and same-day turnaround time. You have now defined your competitive differentiation as well as where you need to focus your time and money – anything that helps you achieve your guarantee. Strategy is nothing without execution. Flawless implementation will lead to exceptional performance and improving fundamentals, which is precisely what banks and investors want to see.
To demonstrate your improving business, you need to verify it through your financials. Your financials are the proof-points that investors will spend inordinate amounts of time trying to understand. These numbers corroborate your story and illuminate what has happened and the trends that foretell what will happen. Make sure you are using a trusted accounting software package and all of the data is properly input on a timely basis. It is just good business practice.
Lastly, you only have one chance to make a first impression. Be confident in your pitch by having a beautiful, professional overview report that tells your story. It should include your strategy, key metrics and, of course, your financials in a visually appealing format that is easily understood. Customize the pitch to your audience and then go give it your best shot!
Chris Myers is the co-founder & CEO of BodeTree, the leading support tool for small businesses. Learn more at www.BodeTree.com.