USA TODAY International Edition

Businesses seeking funds need to show they deserve it

- Steve Strauss Columnist USA TODAY

Need money?

Money for your small businesses is out there. Lots of it.

There is even free money available to small businesses right now.

My friend and colleague here at USA TODAY, Rhonda Abrams, wrote a valuable column recently about the latest round of Paycheck Protection Program funding, the different types of loans that are available, and where to find them, and that is a good start.

So yes, money is available, that’s not the question. Rather, the question is, how do you get your share?

And the answer is: You need to know what banks are looking for and give that to them.

For example, the first thing to understand is that banks want to lend to you. That is their business; it is how they make money.

Wait. Stop. Let’s check that last statement for a moment. One way banks make money from lending is when loans are repaid in full and on time. That is how lenders make money. Therefore, what banks really want are two things: h To lend you money, yes, but also ... h To reduce risk and exposure.

Given that, it follows that your job is to show them that. You need to present your small business in such a way that the lender sees that that investing in your business ( because, after all, that is what a business loan is), is smart business, that your business is a low- risk/ high- reward investment.

( Also, let’s note up front that PPP loans are a bit different from traditiona­l bank loans. They are supposed to be easier to get, with requiremen­ts somewhat relaxed, and repayment terms different than more convention­al loans. But, that said, the underlying analysis I am discussing here still applies because a bank is, after all, still a bank.)

What do you need to show a lender in order to get the money you need? A few things:

1. A business plan

Many small businesses do not have a business plan and that is understand­able; business plans take work.

But if you want a lender to lend you some money, you will need to show them that you know what you are doing, where you are going, how you will get there, and how you will use that money. This is the “smart investment” part of the lending inquiry.

In your business plan, you discuss your business, your marketing strategy, analyze your finances, note the competitio­n, look at your challenges and opportunit­ies – everything someone would need to know in order to properly analyze the strengths and weaknesses of your business and its financial situation.

Your business plan is your chance to show off and let the reader know that yours is a smart investment. The best resource that I have found for easily making that business plan is Liveplan. com.

2. The business Cs

You also will need to show the bank that you and your business are capable of managing the money and repaying the loan ( this is where the “lowering the risk” part comes into play). In order to analyze that, banks often look at what at called the applicant’s “Cs”:

• Character: How is your personal credit? Do you have a history of paying loans back? What is your debt- to- income ratio? Has your business ever been sued?

• Capital: How much money are you asking for, and why?

• Capacity: Does you business have the capacity and ability to service the loan?

• Collateral: If required, do you have collateral to secure the loan?

• Conditions: Are there any business, industry, or economic conditions that must be accounted for – things like possible inflation, potential regulation­s, etc.?

• Compliance: Does the business have a record of complying with taxes, laws, safety regulation­s, etc.?

That’s the secret. If you want a bank to lend you money, think like a banker and you should be home ( almost, but not quite) free.

Steve Strauss is an attorney, speaker and the author of 17 books, including “The Small Business Bible.” You can learn more about Steve at MrAllBiz. com, get more tips at his site TheSelfEmp­loyed and connect with him on Twitter @ SteveStrau­ss and on Facebook at TheSelfEmp­loyed.

The views and opinions expressed in this column are the author’s and do not necessaril­y reflect those of USA TODAY.

 ?? GETTY IMAGES ?? If you need a loan for your small business, it helps to understand banks and know what they need from you.
GETTY IMAGES If you need a loan for your small business, it helps to understand banks and know what they need from you.
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