Thinking about a business loan—what's next?
Inquiring about a loan means you're considering actually applying for a loan. It's a bit like checking out a hiking trail online (map, satellite view, reviews, planning your route, etc.) before you head out for the actual hike. We're honored to be a part of your journey!
Whether you're looking to access capital to start a new business or fund a growth oppurtunity for an established business, taking on debt is a serious business decesion. Our goal is to ensure—should you take your inquiry to the next step and apply—you are prepared and confident about the process.
The first thing that happens after inquiring about a loan, is your inquiry is assigned to a lender based on some of the information you shared. For example, the dollar amount you shared you'd be requesting. Because loan products vary by dollar amount, this is a way lenders assign follow-up tasks. Another example is location; if you are located in Memphis, we want you to work with a lender in Memphis, not Knoxville. One more example is how long you've been in business (we will share more about this important differentiator below).
In an effort to keep the inquiry process simple and timely, the inquiry form does not capture all of the details a lender will want to know. Below are the top three questions a lender asks in their introductory discussions.
This seems too simple, right? By far, this is the most common question a lender asks—and, the most unprepared responses we hear from business owners. You want to be able to answer the maybe-not-so-obivous follow-up questions:
- How do you make money?
- What exactly do you do and what makes you unique?
- When and why did you start your business?
- Who is your target market?
- Who are your main competitors?
- What is your marketing strategy?
A lender is not looking for your thoughts or opinions or vision (necessarily). What they want to hear is objective, factual, researched, validated information.
Think about the question "How do you make money?" After you answer, the lender is almost immediately going to say, "Show me." Can you produce an Income Statement? A Profit & Loss Statement? Do you have a Cash Flow Forecast to support your answer?
You can practise your answers with a Pathway coach before your introductory meeting! If you realize you're not prepared for some answers and/or you need help producing some of the documents, a Pathway coach is here to help! At no cost to you, with no strings attached to your inquiry.
A great answer to this question is a well-prepared Business Plan. Do you have a Business Plan? Does it include the financial statements mentioned above? If you do not have a business plan, you can start by exploring a Business Model or Lean Canvas.
During the inquiry process, you shared a dollar amount you are considering. A lender now wants to know, why that amount? And—more importantly—how did you come to that amount? Do not make the mistake and read that sentence "generally speaking, why that guess-timated round amount..." Remember, a lender wants objective facts, not speculation or optimistic assumptions. So, know their very specific follow-up question:
- Can you provide an itemized list totaling that amount?
That's right! A lender wants to see a list—ideally, to the dollar—of exactly how you will spend the debt capital.
There will likely be an adjacent discussion about collateral. One of the five "C's" of credit is collateral, pledged as security for repayment of the loan. Sometimes loans are secured with small amounts of collateral, while others are secured with significant assets like property and investment accounts.
- What collateral is available to secure the requested amount?
It is very difficult to fund a start-up. By definition, a start-up is a company that falls into one of two categories:
- Pre-revenue (or, ideation stage), meaning the business has no revenue/sales to-date
- Established 1 to 24 months prior, meaning the business can report growing revenue/sales since launch
Specific to a start-up, lenders want to know your experience—both in terms of the business model and your entreprenurial savvy. If you are inquiring about financing a start-up coffee shop, be prepared to talk about your experience and knoweledge of managing a coffee shop. Be prepared to talk about your other entreprenurial successes and/or skill sets that make you a successful entreprenuer. To be fair, our lenders are not looking for the Elon Musks and Steve Jobs or the world. That said, candidly, they are also not going to let you ride the bull at the rodeo if you've never trotted on a horse.
For an established business, who can show growing revenue/sales since their launch, a lender will still want to see experience. Both the experiences you've had since launch, and your previous experience that support your growth goals.
- What industry experience do you have?
- What other entreprenurial and business management experiences do you have?
- What strengths and weaknesses is your business or industry experiencing?
Lenders will also want to know some foundational business specifics. For example:
- How many owners/shareholders/investors are there and what are the ownership percentages?
- Do you have an Employer Identifcation Number (EIN)?
- Have you setup a business bank account?
- Do you utilize a bookeeper, accountant, or accounting software?
Connect with a Pathway coach to prepare for your lender introduction.
What have you learned from this information? What documents do you need help producing? What research do you need help with? What next steps do you need to take before talking with a lender?
Pathway coaches are experts in their field—former executives, CPA's, and more with expertise ranging from accounting to sales & marketing. We're ready to help you and your business start and grow!