How to Ask Your Bank for Money
The process of asking for money is deceptively straightforward, but as in most things, the details matter.
I encourage business owners who are applying for a loan from their bank to include a simple attachment–a summary, written in very direct language–along with the bank's required form.
Remember, you are not selling your business as an investment vehicle for the bank. You are creating confidence that the bank's money will be repaid. And to gain that confidence, they need to understand several things at a basic level.
1. What your business is: On your first page, explain the market you serve, the competitors in that space, the value you bring, and why your business will be successful. Do it all in one page: Your banker is smart, but busy. This has to be a business that your banker and the loan committee can easily understand, so that they have enough confidence to lend money. Simple and short is better.
2. How much money you need–and how you will use it: It is fine to make a simple list of items and the associated amounts of money. Possible items on your list: equipment to purchase, a marketing campaign investment, a new facility build-out estimate, and working capital to support payroll and other expenses. Be sure to attach supporting budgets.
3. How you will pay the money back: I am surprised when I receive business plans, forecasts and investment documents with murky numbers and unclear thinking in this area. As the applicant, you have to make estimates: how much money will come in, how much will go out, what will be left over, and how that all relates to loan repayment terms. Remember, the loan committee's first responsibility is to lend money to people who will repay them with interest. That means their No. 1 concern is how and when the money will be paid back–not how great your business will be in general terms.
4. What happens if things don't go as planned: What is the bank's fallback position if the market changes or the business falls short? Is it a guarantee from you, or a partner with collateral? Or maybe it is a loan guaranteed by the SBA or supported by a local or state program for business–but regardless, you need to address this in your documentation.
5. Who's running the show: You are not just pitching the business, but building confidence that your leadership and your team's skills. Provide a team profile that shows the lender's money will be well managed.
Addenda: Here's where you include the numbers--budgets, forecasts, past financial performance--and any other supporting materials for the previous items.
Investors and lenders are similar but not the same. When asking for money from a lender, the approach is different. The investors are focused on how much they will receive for the money they invest. But lenders want to know the risk of not getting their money back. One is about upside; the other is about avoiding downside risk. For the banker, your approach is about confidence in repayment.