Thursday, February 18, 2010

Asking for a Loan? Common Mistakes Made by Businesses

Many business owners have given up asking their lender for money these days. Perhaps they have already been told ‘no’ more than once and they cannot get a grasp on how to move forward as a business without being able to access capital. I would like to suggest that there are some very positive steps that any business can take that will not only improve the business’s financial position, but will help any business move to a more bankable position:

1.) Assuming that your business has profits, quit taking all of the profits out of your business! You cannot grow a business without profits. Your banker knows that and so should you.

2.) If you are not profitable, find out why. If you don’t know how to analyze your financial information get help! Contact your accountant or your business adviser if you have one on retainer. You can also access services through your local Small Business Development Center. Profit Mastery is a business finance educational program that you can access through the Small Business Development Center and it provides down-to-earth financial management tools that any business owner can use.

3.) Analyze your customer base and begin developing a customer relationship management system. You have ‘gold’ in your customer information and ‘mining’ that gold can add to your bottom line. Since 80% of your business likely comes from 20% of your customers, find out everything that you can about those customers and then develop a strategy to find more of them!

4.) Make sure your financial information is accurate, that you review it regularly and that you know which items could be a red flag for your lender. For example, if you find out that your Balance Sheet reflects negative retained earnings you should know that your lender will not be pleased. For that reason, you may want to go back to point number 1) and stop taking all the profits out of your business!

5.) Build a strategy for success. This takes planning and if you need to have someone help you through the planning process contact the Small Business Development Center. Building a strategy takes a lot of thought. I recently came across the following quote which sums up, very succinctly, why the typical business owner may have difficulty developing a strategy for their business:

“There is no labor from which most people shrink as they do from that of sustained and consecutive thought; it is the hardest work in the world.” Wallace D. Wattles
If you find it challenging to stay focused on the planning process, find an adviser to help you through the planning process. Again, this could be your accountant, a business consultant or the Small Business Development Center.


I have another list, in my office, which is specific to documentation requirements for developing a loan package. I use that list whenever I work with clients to help them develop a loan proposal. But presenting a loan proposal to your lender, before you lay the foundation for success, is like putting the cart before the horse.

If you need assistance contact your local Small Business Development Center for confidential, no-cost services: 360-442-2946 or http://lowercolumbia.edu/smallbus
Article written by Susan Hoosier, Certified Business Adviser and Certified Economic Development Professional, with the Washington Small Business Development Center in Longview, WA 360-442-2946. Susan has owned and operated three businesses and managed a revolving loan fund for a Midwestern Regional Development Commission.

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