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How to Get Turned Down for a Bank Loan
“If you are a female business owner planning to secure a bank loan in 2011, steer clear of these common mistakes or risk being turned down,” says CPA Pamela Hedblad, a principal at the Silicon Valley accounting firm of Abbott, Stringham & Lynch.
By: Lyne Noella
Mistake #1: Wait until you need a loan to contact the bank. “The worst time to introduce yourself to a banker is when you need a loan,” says Hedblad. She advises founders to establish a relationship with multiple bankers “throughout your career and certainly when you are even thinking of starting a business.” Hedblad says that owners who show up at the bank hoping to get a loan based strictly on a business plan are at a disadvantage. “Bankers need to get a sense of your personal integrity. Build a positive history with multiple bankers—these are the friends who will go to bat for you with the credit committee when you apply for a loan.” Hedblad suggests that if you do not know a banker, ask other professionals, such as accountants, attorneys, and other business leaders, to make an introduction.
Mistake #2: Show up with sloppy books. “Secure a reliable and knowledgeable bookkeeper,”
Mistake #3: Put off creating a strategic plan. Hedblad has observed that many business owners “jump in with both feet and get to work” without creating a business plan. “In the venture world, you have to have your act together to secure funding. Business owners without the immediate need for financing are not forced to create a business plan, so many simply do without one.” Having no plan is a mistake, according to Hedblad. “During the loan application process, bankers are looking for a solid strategic plan, along with financial projections. They want to know how the company will be managed.” She says that while a business owner may intuitively understand where the business is headed, it is important to communicate the specifics. “You want a five-year plan with a financial picture that projects your revenue level, required financing, number of employees, and profitability, among other factors.”
Mistake #4: Ignore competitive advantages. “Many major corporations are looking for women-owned businesses to satisfy their contract needs,” says Hedblad. To qualify as a women-owned business, Hedblad points to the value of certifications. “Though certifications may not be right for every type of business, they can lead to securing corporate, retail and government contracts. You can get a leg up over competitors, especially if your customers are large, publicly held corporations.”
Mistake #5: Wait to build your team of advisors. “A bank is more likely to look favorably on your business when you are supported by a great team of advisors,” says Hedblad. “Get your attorney and accountant in place upon establishing the business, if not prior. Befriend and get the advice of part-time chief financial officers. Surround yourself with professional service providers who are connected with the business community.” Hedblad says that your team of advisors can help you identify the right bankers for your business and can often make an introduction. “Seasoned accountants, attorneys and CFOs usually enjoy long-term relationships with local bankers. In the banker’s eyes, a strong professional service team implies a vote of confidence in you and your business.”
Hedblad advises that you actively network with other female founders. She says there are many associations that support the female business owner, including the National Association of Women Business Owners www.nawbo.org;
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About Abbott, Stringham & Lynch: Abbott, Stringham & Lynch (ASL) (www.aslcpa.com)