For a startup or new business owner, obtaining financing for your small business can be very important. In the SCORE Small Business Success Podcast: How to Obtain Financing for your Small Business SCORE mentor Lou Davenport shares three key areas banks and lenders look for when considering financing a small business.
Lou says the biggest mistake people make when obtaining finances for their business is they "undershoot." "It's human nature to underestimate the needs you business will need," says the SCORE Mentor. Planning plays a huge role in getting your business finance. Ensuring you have the necessary steps in place allows you to be a more desired candidate to lenders is key.
Below are three key areas lenders look for before financing your business.
1. Clear Evidence
Lenders want to see clear evidence that your business concept is feasible.Lenders look at hundreds of business plans throughout the year and Lou says, "they know what good looks like and they know what fluff looks like." It's very important to have solid evidence to show to lenders that you understand your business and the financing it needs to get started and to sustain. Lenders are looking to see if your business idea meets a market need and if it can sustain in the marketplace. Developing a comprehensive business plan is the key to providing clear evidence. A Business plan allows you to go in-depth with business goals, how they will be achieved and if the goals make sense. Connecting with a SCORE mentor to assist you with your business plan, is a great way to make sure you have a solid business plan.
"They (lenders) recognize that small business is betting on the individual and not the plan," says Lou. The credibility of a person and the experience they have is a huge factor. Being able to show that you have experience in the business you want to open can carry a lot of weight. Experience can be key when it comes to building lender confidence in your plan .
3. Personal Finances
"Personal credit reports and personal credit scores definitely say something about the ability of the person to manage their personal financial affairs in an excellent way over time," says Lou. Being able to show lenders that you have money management skills can go a long way when you are asking for finances. Having a low credit score or undesirable credit issues, might be a deterrent. Lou says obtaining finances for your business often times depends on: character, capacity and potential cash flow.
Want to learn other financial options such as angel investing when it comes to obtaining finances for your small business? Listen to the full podcast: How to Obtain Financing for Your Small Business
Are you looking to start a business plan or would like someone to review it? SCORE's Business Plan Assist will connect you with a SCORE mentor.