How Talking to a Lender Is Different Than Talking to an Investor
by Ami Kassaar, Multifunding
If business owners go out to meet a lender, they often go in with the same mindset as a meeting with investors. This sabotages their chances of qualifying for a loan. Lenders have very different priorities and look for very different criteria in an applicant.
If you’re interested in taking out a business loan, it’s important to understand how the process is different before you go out and speak to lenders.
The Mindset of a Lender
Lenders are primarily concerned with managing risk. If they’re going to give you a loan, they want to know that you’re going to be able to pay everything back on time. Lenders are less concerned about your vision or the future prospects for your company. They are less likely to get excited about the potential behind your company; unlike an investor, they won’t be sharing in your long-term profits. Instead, lenders just want to see that your company will be able to safely handle paying back the loan.
What Lenders Look For
Lenders are more interested in your past and present financial situation than investors. They want to see concrete information that proves you’ll be able to make your immediate loan payments. This includes information like your credit score, current incoming cash flow, and financial assets that you can use as collateral.
Lenders are less interested than investors in the future prospects of your company. They won’t give you a loan just because you have an exciting product under development or a solid expansion plan that will triple your profits in five years. This information won’t hurt your loan application and could make your company look a little better to a lender, but it won’t be the key to receiving a loan. Instead, when meeting with a lender, focus on presenting financial information that shows you can comfortably manage the loan payments and aren’t a default risk.
Tips for Speaking to a Lender
Before you speak to a lender, get in the right mindset. Remember: lenders want to see concrete financial information. Ground your presentation as much as possible in facts about your business – these should be points that you can back up with hard evidence. Stay away from vague promises for the future. You’re not trying to sell the story or dream behind your company like you would with investors. Not only will this information not help your application, it could make the lender uncomfortable and distract from your relevant financial information, leading to a loan rejection.
Instead, put together a clear, straightforward presentation that has all your financial documents in order. If you’re presentation is a little bit on the boring side, that’s okay. You aren’t trying to get a lender excited. All you’re trying to do is show them that you aren’t a risk and that they don’t have to worry about give you a loan. Be prepared with documentation that emphasizes your financial reliability.
Save the excitement for your investors. When you’re talking with a lender, focusing on the facts gives you the best chance of qualifying for a loan.
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