Ten Rules of Negotiating for Financing

 

Ten Rules of Negotiating for Financing

 

Ten Rules of Negotiating for Financing:

  1. Prepare a comprehensive business plan.
  2. Be prepared to explain uses and benefits of the proposed loan.
  3. Speak to the appropriate person.
  4. Do not overstate your financial strength. Be realistic.
  5. Give complete information about your business.
  6. Seek a lender with whom you feel comfortable.
  7. Negotiate interest rates and fees.
  8. Give an impression of confidence and competence.
  9. Carefully check all terms of the agreement.
  10. 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,

Debt Financing For The Small Business

 Debt Financing For The Small Business

When it is necessary to look to someone other than yourself or a close friend or relative for business funds, it helps to be aware of other sources.

Banks

Banks are financial institutions that accept deposits and make loans. They fall into several categories, such as savings and loans, thrift institutions and commercial banks. Knowing the category in which they include themselves can tell you a lot about the kinds of loans these banks are interested in making.

Savings banks are more experienced in dealing with consumer loans, such as home mortgages and automobile loans. Commercial banks have more experience and interest in business loans. This doesn’t mean that you can’t go to a savings bank for a business loan. It may be a good choice. Just be sure to consider that bank’s primary focus and level of experience with your type of request. Probably the most important point to keep in mind when dealing with a bank is that bankers don’t like risk. Their primary concern is always the safety of their funds. More…