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Selling your Ideas to Business Bankers and Getting a Loan |
| By David Silverman Category: General |
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You’ve got a great idea for a product. Scratch that, a fabulous idea. Hold on, it’s an awesome idea. It’s the best idea ever. And now you want to make it into a business. You just need a little bit of money to get yourself going. You check your bank account—hmmm, that’s not going to be enough to start production. You call your friends, and they are impressed with the idea, and are sure everyone will want to buy one, but, well, they don’t really have any spare cash right now with the kids going to college and the house repairs. So you call up Mr. Banker and the conversation goes something like this: “I have a great idea!” “How much money do you need? “Let me explain how my product works.” “What do you plan to spend the money on?” “See, and that’s why everyone will want one.” “How and when will you make money?” “I’ll be on the cover of Time Magazine!” “And how will you guarantee I get my money back?” The problem is that mad-scientist inventors talk about how the product works and how much they love it, and bankers talk about money and how much they expect to keep it. For anyone starting a business, the most important thing isn’t the idea; it is communicating that idea into the language of the banker. (After all, what’s so revolutionary about a hamburger made quickly or a mop that wrings itself.) The Banker doesn’t care Fundamentally, the banker doesn’t know if your product will be a hit or not, and he or she doesn’t care. All they want to know is that you understand finances and cash flow and have enough assets to cover their loan. To get the banker to believe in your business, you will have to show them how it works, not as a product, but as a financial model. When you make your business plan (you are making a business plan, right?) don’t make the common mistake of focusing on the text that explains your product. Instead, spend your time making the key documents: projected income statement, balance sheet, and cash flow. If you don’t know what these are, that’s OK, go get a good book on the topic, like this one(Amazon.com). Your banker speaks the language of those spreadsheets and if you show up with them, he or she will already have more respect for you, and be more likely to lend to you, than all of your “isn’t it neat!” competition. |
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| David Silverman is the business therapist. He has been an executive at Citigoup, owner of a typesetting company, sold offshore services, worked in technology for the US government and IBM, lived in London and Prague, and run his own floppy disk repair business. He has a B.A. in computer science and now lives in New York City. Visit his website at www.agman.com |
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Selling your Ideas to Business Bankers and Getting a Loan
