Banks and institutions that lend money have a lot
of knowledge about the success rate of small businesses. Bankers are often
overly cautious in making loans to small businesses. For that very reason, it
makes sense to study their approach, even though it may seem discouraging at
first glance.
Banker’s Ideal
Bankers look for an ideal loan applicant,
who typically meets these requirements:
• For an existing business, a cash flow
sufficient to make the loan payments.
• For a new business, an owner who has a track
record of profitably owning and operating the same sort of business.
• An owner with a sound, well-thought-out business plan.
• An owner with financial reserves and
personal collateral sufficient to solve the unexpected problems and
fluctuations that affect all businesses. Why does such a person need a loan,
you ask? He or she probably doesn’t, which, of course, is the point. People who
lend money are most comfortable with people so close to their ideal loan
candidate that they don’t need to borrow. However, to stay in business
themselves, banks and other lenders must lend out the money deposited with
them. To do this, they must lend to at least some people whose creditworthiness
is less than perfect
Measuring Up to the Banker’s
Ideal
Who are these ordinary mortals who slip through
bankers’ fine screens of approval? And more to the point, how can you qualify
as one of them? Your job is to show how your situation is similar to the
banker’s ideal. A good bet is a person who has worked for or preferably
managed, a successful business in the same field as the proposed new business.
For example, if you have profitably run a clothing store for an absentee owner
for a year or two, a lender may believe you are ready to do it on your own. All
you need is a good location, a sound business plan, and a little capital. Then,
watch out Neiman-Marcus! Further away from a lender’s ideal is the person who
has sound experience managing one type of business, but proposes to start one
in a different field. Let’s say you ran the most profitable hot dog stand in
the Squaw Valley ski resort, and now you want to market computer software in
the Silicon Valley of California.
In your favor is your experience running a
successful business. On the negative side is the fact that computer software
marketing has no relationship to hot dog selling. In this situation, you might
be able to get a loan if you hire people who make up for your lack of
experience. At the very least, you would need someone with a strong software
marketing background, as well as a person with experience managing retail sales
and service businesses. Naturally, both of those people are most desirable if
they have many years of successful experience in the software marketing
business, preferably in California
Use the Banker’s Ideal
It’s helpful to use the bankers’ model in your
decision-making process. Use a skeptical attitude as a counterweight to your
optimism to get a balanced view of your prospects. What is it that makes you
think you will be one of the minorities of small business owners who will
succeed? If you don’t have some specific answers, you are in trouble. Most new
businesses fail, and the large majority of survivors do not genuinely prosper.
Many people start their own business because they can’t stand working for
others. They don’t have a choice. They must be either boss or bum. They are
more than willing to trade security for the chance to call the shots. They meet
a good chunk of their goals when they leave their paycheck behind. This is fine
as far as it goes, but in my experience, the more successful small business
owners have other goals as well.
A small distributor we know has a well-thought-out business and a sound business plan for the future. Still, he
believes that his own personal commitment is the most important thing he has
going for him. He puts it this way: “I break my tail to live up to the
commitments I make to my customers. If a supplier doesn’t perform for me, I’ll
still do everything I can to keep my promise to my customer, even if it costs
me money.” This sort of personal commitment enables this successful business owner
to make short-term adjustments to meet his long-range goals. And while it would
be an exaggeration to say he pays this price gladly, he does pay it.
No Comments
Post a Comment