A person proposing the startup of a business needs to first decide which type of financial institution they want to do business with. There are two main types; first, there are banks which are privately owned and are for profit institutions. These are governed by a board of directors who are appointed to oversee the operations. Secondly, there are credit unions, which is a nonprofit institution that is owned by the members and are governed by a board of directors that is made up of the membership. It might be a good idea to apply at both types of institutions to see which will give the best rate and accommodations. The procedure used to summit a proposal is very similar with both institutions. In the next few paragraphs we will discus this process as seen from the lenders perspective. The first topic will address the factors that a lender feels is important to a small company’s success. The next will be what factors they feel could cause a business to fail, and finally, we will close with what a lender needs to see in a startup before they will consider lending money for the venture.
The factors that a lender feels are important are the type of business that is being opened, the location, and the potential market. If it is a new company, the lender would then investigate the perspective owner’s personal credit standings. They would also want to know what experiences they have in that particular industry, if any. A detailed business plan would be required showing at least the first three years of projections. It is important to show the type of relationship that exists with your current financial institution. If the relationship was in a questionable state, then that would be a factor to consider and could have an impact on the institutions decision. The amount of cash flow could also be a consideration, especially with existing companies looking to expand. The lender is looking for a stable foundation to build on. It is important for you to do all you can to show stability and strength in your plan. Finally, the lender is going to want to see any financial statements, both personal and business, that will support your proposal. These may consist of balance sheets, tax returns, and profit and loss statements. It is also important to remember, as stated above, any business plans submitted must have at least a three year projection.
In conclusion the outline above addresses the factors looked at by lenders for a small company’s success, failure and what it takes to prepare a proposal that would be viewed positively through the eyes of a perspective lender.