Here are three things that entrepreneurs should consider when preparing to approach a financial institution for a loan.
At BOOST 2016, Peter Queeley, General Manager of the St. Patrick’s Cooperative Credit Union shared what banks look for when choosing to finance a business.
- Business Planning. “We want to see that you understand the market. Have you carved out your niche? How will you compete on brand, service, quality and price?” Another important factor in the business planning process is financial projects and whether they make sense, Queeley said. “Regulators look at us. They assess the loans we give and they want to know did we make our decisions on sound principles. When a loan goes bad we have to give an explanation.”
- Ability to Repay. “A good banker will lend you money even if you have no security IF you have the ability to repay,” says Queeley. You must be able to show that your business can generate the income necessary to cover costs and salaries. As a startup, you cannot demonstrate the ability to repay however, the manager suggests deploying a bit of savvy. Be able to show you have capital injection. Discuss with your banker a repayment plan which can help you to get your business jump started.
- A level of security. “If things go bad…then what? What is the fall back position? Remember banks are in the business to make money. What profits the bank is interest.” Queeley added that the level of risk plays a role in the bank’s decision to provide a loan. Age is not the priority.
While it is not currently a cultural practice, the credit union manager said more entrepreneurs should consider partnering with others to get their ventures going. He said educating yourself about the options and finding the right legal advice to set it up was essential. However, partnerships provides additional support which could make it easier for a business to attract a bank loan and also to succeed.
Queeley was speaking at BOOST 2016, which was a collaboration between the credit union and business strategist Nerissa Golden. Visit www.nerissagolden.com to get more information from the just concluded event.