Ten Rules of Negotiating for Financing
Ten Rules of Negotiating for Financing:
- Prepare a comprehensive business plan.
- Be prepared to explain uses and benefits of the proposed loan.
- Speak to the appropriate person.
- Do not overstate your financial strength. Be realistic.
- Give complete information about your business.
- Seek a lender with whom you feel comfortable.
- Negotiate interest rates and fees.
- Give an impression of confidence and competence.
- Carefully check all terms of the agreement.
- Dress conservatively.
Rule Number One
Prepare a comprehensive business plan, including an income (profit and loss) projection for one year and a cash flow projection. An overview of competition, composition of management and staffing, marketing plans and pricing strategy are also important. Lenders respond favorably to applicants who know where they are going and who have done their homework. See the Appendix: How To Write A Business Plan for an outline of material that should be included in the business plan. Use SBA Form 1100 for Cash Flow Projection.
If your strategy can be adjusted to alternative amounts of financing, request the preferred amount first and be prepared to submit the alternative plan if you meet obstacles.
Rule Number Two
Be prepared to explain uses and benefits of the proposed loan. Summarize the information in the Sources and Funds Statement in your business plan, and provide specific examples and supporting data for uses of the funds (e.g., estimates, list prices for equipment, etc.).
Rule Number Three
Speak to the appropriate person. With banks, as well as withall other sources, find out who will make the ultimate decision about your financing request, and then deal with this person directly. It is a waste of time to present your loan request to an individual who does not have the personal authority to lend you funds.
In banking, most commercial lenders have what is commonly referred to as a lending limit. This is the amount of money they are able to lend on their own authority, without having the request approved by any other parties. It is perfectly acceptable to ask the amount of the lending limit even before setting up an appointment and, what’s more, it’s advisable.
Rule Number Four
Do not overstate your financial strength. Be realistic! Guardyour credibility like the very real asset it is. Remember, the investor will almost certainly verify everything you say.
If you tell him your first quarter sales were $4,500,