Water, water everywhere, and not a drop to drink!

The only guy who’ll lend you an umbrella when the sun is shining, and take it back when it starts to rain: a banker.
My first introduction to bankers was when I was about 7 years old. I remember distinctly, walking hand-in-hand with my father to visit the banker at the Yorkdale Mall branch of the Bank of Nova Scotia. We sat in his glass-screened office, in front of his imposing desk (I was 7 years old after all), as my father pulled from his pocket a picture of the Italian textile manufacturing machine which he wanted to purchase. He needed three thousand dollars to start his dream of building a textile mill – after all, he was a weaver by trade. He intended to start with industrial belts and assorted textiles, including automobile seat belts, at a time when seat belts were not even a consideration in the manufacture of automobiles.

The banker listened politely to my father’s broken English, as he outlined his experience and his plans. When my father finished telling his story, the banker asked only one question, “Do you have any collateral?”, to which my father replied, “Collateral? I have plenty of kids, but I’m short on collateral!” I don’t think that impressed the banker because he politely escorted us both out of his office without even offering a free calendar. In retrospect I can hardly blame him. The poor guy probably didn’t know what to make of this immigrant and his kid, talking about weaving machines from Italy.

There are several things you can do as a business owner to ensure that you get the money you need when you need it. You need to start with a plan. You don’t necessarily require anything tangible, but an idea that can be explained, demonstrated, and quantified, that will result in a return greater than the costs incurred to make the idea into a reality. You need only look to the likes of Steve Jobs, or Mark Zuckerberg, or the millions who work in technology-related industries which did not exist even a decade ago. On a scale that we can relate to, any small business owner needs to know his own needs: how much money is required, for what reason, when it’s needed, and the end result of that infusion of capital. After all, the banker is in the time business. He will lend you money, to use for a time, during which you will pay him a rent for the use of that money, along with repayment of the original sum borrowed. You are renting the capital; it is not a gift.

In order to make your case, it is essential to provide the banker with a means to evaluate your idea or proposal. A written business plan, outlining in appropriate detail what you propose to do with the money you borrow from the banker is an essential first step. It is a document that will help the banker to understand your idea, your business, your industry, and lead into further discussion towards your end goal. It is not necessarily a document that needs to be carved in stone, but that is subject to revision and improvement, and may even be a collaborative process with the banker, and your accountant and lawyer.
Now that the banker has evaluated that you have a well-considered proposal, you need to back up your idea with a picture painted in numbers. You need to provide either historical operating information demonstrating the evolution and growth of your existing business to where you are today, or your expectations as demonstrated by future-oriented financial information, such as cash flow projections, sales projections, pro forma financial statements, and the like. These numbers create an image of your plans which may be further evaluated, and assessed for reasonableness and risk by the person who may ultimately make the decision whether you go forward with the bank, or are shown the door.

This takes time, effort, and possibly professional assistance. You can google “business plan” and spend a lifetime reading information which may not be applicable to your situation. You may find templates, but it’s what you put into those templates that will win you the loan approval. It’s really about substance, not form of the presentation. Sure, it’s nice that it’s printed on bond paper, and bound at Staples, but in the end the only thing that matters is whether your proposal makes sense. You need to use narrative and numbers which may be evaluated, and to which you will be held to account, and which demonstrate the merit of your enterprise in terms of profitability and recovery of investment (including the repayment of the loan), which will win you the approval and access to the money.

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