Finance Your Money Right Understanding how bank financing works will save you time and money.
Avoid the missteps and misfortunes of other loan-seekingentrepreneurs. Strong credit and collateral won't always getyou approved, and even if you are successful, not taking time toget acquainted with the banking system can really hurt you.It's very important for an entrepreneur to understand bankfinancing. Doug Hood of Rainmaker Capital Corp. offers a fewguidelines:
1. Make sure you use the right financing strategy. If youneed money for inventory, working capital, payroll expenses orother needs to be met within one year, get a short-term loan orline of credit. If you're going to purchase equipment, abuilding or other fixed assets, get a long-term loan. The goal isto match the term of the loan with the life of the product.
2. Know the difference between a line of credit and a termloan. A term loan is what you use to purchase a fixed asset. Aline of credit can be used for ongoing and short-term expenses.
3. Ask how much experience the bank has lending in yourindustry. If the bank is unfamiliar with your industry or has ahistory of losses when working with it, that can dramaticallyreduce your chances of getting a loan.
4. When you ask for a loan, it doesn't hurt to ask for 10to 20 percent more than you need, in case the banker wants tolend less than your asking amount. But realize you'll have toadequately justify the amount.
5. Negotiate. If the loan is less than you need, tell thebanker you'll be back and ask him or her to put in writing whatplateau you must reach to get additional money. You can also try tonegotiate loan fees. Offer a carrot-such as "If I bringall my company deposits here, can you reduce my loanfees?"
6. Don't be afraid to use your leverage to get what youneed, but have the financial stability, cash flow andmanagement experience to back up your position. This is no time forbluffing.
7. Get any verbal promise in writing. If it's not inwriting, it didn't happen.