How do you get a bank loan for your startup? Banks don’t like to lend to new businesses. You’ve heard this already. Banks are in the business of making money. They want to know you’ll pay back the loan. Startups are risky. Many new companies fail. Your startup lacks a track record of success. Your credit history is insufficient. Lenders fear you may not generate the cash flow to repay the loan.
It all sounds gloomy. And in fact, these glum realities stand in the way of many good ideas. But you don’t have to take this sitting down. There are ways to move your small business loan application to the top of the approval pile.
Follow these 4 tips to get a bank loan for your startup.
You need a strong business plan.
Writing a business plan is critical, even if you don’t need to raise capital. The process of writing it forces you to look at your startup from all angles, not just through the lenses of your optimism. Your business plan also lays out an infrastructure that will carry you forward from the day you open your door to the day you become a global powerhouse.
Be sure to include the following:
An executive summary:
- A brief snapshot of your financial condition, your startup’s legal structure, how much you need, and why.
- Think of your executive summary as a 30-second marketing pitch. You need to make a convincing argument right away to encourage the loan officer to continue reading.
Here is where you get your loan officers excited about your startup. Keep it precise and easy to remember.
Competitive analysis of your industry
This section of your business plan proves to bank lenders that you are a serious commodity. You’ve analyzed your competitors’ strengths and weaknesses and have developed a strategic plan to position yourself competitively in the marketplace.
Explain your business’s legal structure, name your management team, and provide a brief bio of all key staff, including yourself.
Product or service information
How is your product or service going to benefit consumers? Why is it needed, how will you maintain quality control? Include an overview of your marketing strategy, including the channels you intend to use. If you have competitors, explain how your product or service is different or better able to fill a consumer market gap.
Financial projects and forecasts
This section of your business plan is critical to getting a bank loan for your startup. Your financials need to be factual and error-free. Banks want to see plans for expansion and revenue growth. Include three sets of forecasts: sales, cash-flow, and balance sheet.
2. To get a bank loan for your startup, make a personal investment.
Banks like to see that you have some skin in the game. Try to contribute at least 20% of the total amount you are requesting from your personal funds.
3. Promote your experience.
If you’ve launched previous successful startups, then you’ll have an easier time convincing loan officers of your ability to start up and manage a business. If you’re a new entrepreneur, you’ll need to promote your industry experience to get a bank loan for your startup. Talk about your accomplishments. If you managed a product design team, explain how you will use that experience to develop and market your product. This is not the time to be modest about your successes.
4. Ask loan officers to meet you at your premises.
Meeting on your own turf will be much less intimidating. Furthermore, inviting them to your premises allows you to showcase your layout, location, meet other members of your startup team, and soak in more of the enthusiasm you have about your startup.
If you don’t get a bank loan for your startup, don’t give up on your dream. There are different funding options, such as the SBA and other startup loan and grant programs. Many alternative lenders fund new starts. Stay tuned for more information about alternative funding sources.