For many businesses outside funding is an important tool that is instrumental to their growth. If you're in that position or ever have been how do you know whether you should work with a banker or a venture capitalist? How do you know what banks are looking for? And are there ways you can increase your chances of getting financing?
Joining us to answer those questions and more is commercial lending expert, Jenny Shtipelman. On this episode of Grow My Revenue Jenny and I discuss how to create and sustain the best possible relationship with your banker, and much more.
Listen to this episode and discover:
- What are the biggest pitfalls businesses make when requesting a loan?
- What it says to a bank if you aren't willing to sign a personal guarantee.
- What is the two bucket scenario and why is it important to the lenders?
- What can you do to increase chances of a good relationship with your bank?
- Why systems are so important to your potential lender.
- And so much more…
Episode Overview
Jenny Shtipelman is a rarity in the banking world: she's the type of person who will give you honest advice, even if that advice is to work with someone else. And the advice she gives is always solid: she's spent nearly 15 years in the commercial banking industry and worked in personal finance before that. If it involves lending or finances she knows about it!
On this episode Jenny shares the three things banks look for when you're requesting a loan for your business, why personal guarantees are so critical and when you should approach a bank for financing and when you should ask a venture capitalist, or if you should do a combination of the two.
Jenny says the three things banks look for when deciding whether or not to approve a loan for your business are:
1. You must show the bank either via history or projections that you will be able to service the debt you are requesting.
2. You must have some type of collateral. It could be real estate (but doesn't have to be), or it could be something like accounts receivable. The types of collateral will vary depending on your business but be prepared to have something of value to back up the loan.
3. It's critical that the principals behind the business have a habit of showing they pay their bills. If they can prove this they are showing the bank they are responsible, and it will weigh in favor of the loan being granted.
Whether you approach a bank for a loan or a venture capitalist for funding will depend on your business, and your business goals. Banks in general are far more bottom line-driven, meaning they are looking for cash flow and profits. Venture capitalists are top line-driven, they are looking for revenue growth and other top line indicators.
So if you are anticipating exponential growth you should talk to investors. If your bottom line is solid and you are projecting an increase there you should approach a bank.
You can do both venture backing and bank financing. This is especially true if you have controlled growth - the type of controlled growth that allows you to give some equity and take on debt while still meeting your numbers and serving that debt. Banks generally look favorably on companies with investor backing, it shows them other people have some skin in the game of the business' success too.
Also on today's show Jenny and I discuss why personal guarantees are a necessity (at least in the early stages of your banking relationship) as well as her top tip for creating a strong relationship with your banker. You'll hear her candid and knowledge advice on all of that on this edition of Grow Your Revenue.
For more information go to http://www.growmyrevenue.com/business-cast/
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