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Thursday, October 27, 2011

MONEY: Getting Your Loan.

     This post continues the post I made on 10/10 about Starting Your Own Business and Dealing With Banks.  Hopefully I got across the point that when dealing with banks you tell them no more than you need to tell them to get your loan.  That being said you have to properly prepare yourself for seeking help from a  bank.  Banks are interested in one thing making money.  You need to convince them that your plan will make money.  More than that, that you will make them money.  You need to know the answers to the questions they may ask you.  The thing they need to know is that your idea or plan is profitable.  Of course this is something that you also need to know.   They do not want to hear, "I think it will make this much."  They want to hear "It will make this much and here is how."  Then you need to be prepared to tell them why you need the money your asking for.  You also need to be able to tell them how much profit it will make.  If you can not answer these simple questions you are not ready to deal with a bank. You need to practice your sales pitch that you will give the bank till you are totally comfortable telling it to anybody that asks.  This will help you sound convincing when you go into the bank.  You may be nervous, but it should not show.  You need to project confidence and professionalism.   That starts with what you wear and how you look.  What the banker sees the first time he sees you will influence his decision.  You may work in cutoffs or jeans with holes in them and a T shirt with your favorite slogan on it.  However when you enter a bank you are on the bankers turf and you need to look up to the part.  I always wear a suit or slacks and a nice shirt or sweater when dealing with people I am asking to invest in my business.   Is it hypocritical, not really.  It shows you know how to be professional when you have to be.  When doing sales work I almost always had on bib overalls.  The one place I did not compromise is my beard.  My beard is pretty long and gray.  Picture in your mind Santa Claus and you have just visualized me.  Sometimes I had to ask people to give me thousands of dollars up front strictly on my word.  Sometimes people would say to me, "How do I know I can trust you?"  I usually just smile and say,  "If you can't trust Santa Claus who can you trust."  I hardly ever had a person say no to me.   Could Santa Claus rip them off? You betcha it could happen and does, but not by this Santa Claus. 

     This part may sound a little strange but it helps.  First you do not want to come across as begging or needing the help.  In fact it helps if you can put across an image of not needing the money.  Your presentation should clearly show how you will use the money you are asking for.  If you can not show or tell how you will make money your chances are slim.  If you have already done X amount of business and made X amount of that is a strong help.  Some businesses require little planning and very little equipment.  Basic landscaping may get buy with a pickup truck, a wheelbarrow, a couple types of shovels, several kinds of rakes and some tarp.  Most everything else you can rent from a rental center.  Building decks may be simple also.  The basic pickup, a good saw, a small chain saw, some post hole diggers and some saw horses can get you started.  You can rent a trailer for hauling longer items, or machinery for moving dirt.  You need to figure these rental costs into your estimates.  Time going and getting them, cleaning them up and taking them back are all part of the job.  Knowing what materials are necessary to build the deck are also important.  If you make out a written contract for the job it should have a good description and picture diagram of the deck and how it will be built. When you have this in hand you can go to the bank and tell them I have a contract for a deck of X size, it will cost this much for materials and it will net this much.  You should be able to tell him how many man hours you will have in it.  The banker will decide based on how prepared he thinks you are.  You occasionally will have things that come up unexpected, but generally you should know your business well enough to know how much you will make.  The contract should detail the basics.  How many steps, the pattern of the posts, the type of materials,  are there railings and  is it screwed together or nailed.  How the post are set.  The more detail you can put in the contract, the less chance the customer can add things that will take away from your profit.  Make sure your contract is clear that if it is not in the contract it is not covered and must be negotiated separate.  Believe me I learnt this the hard way.  It does not have to be fancy but it will help you convince the bank you know your business.

     Finally when you get the loan pay the bank first, the materials second, your employees and rental fees third and yourself last.  Paying in this order will help you stay in business.  It will only take burning yourself once or twice to find out if there actually is a profit to be made in your business.  It is best to learn it quickly and adjust accordingly.  If the bank gives you the loan and even if you lose money, as long as you pay them and maintain your credibility you can get another loan and try it again.  If you spend all the money and leave everybody else hanging for the money owed them you won't be in business long.  Going back up to what I said about trusting Santa Claus.  There are plenty of con artist who take advantage of customers, banks and everybody else they deal with.   That is what makes it so hard to get a loan.  I always heard that 50% of all new businesses fail in the first five years.  That number supposedly rises to 95% by ten years.  Some businesses are even worse than that,  Restaurants are even worse than the average business.  They supposedly hit 90% failures by five years.  It is a very competitive field.  You can profit from their failures though.  A friend of mine made a very good living buying and selling restaurant equipment.  When going out of business most will take what ever they can get.   Getting into the business they will pay what they have to for what they need.  He made his living knowing the differences.  He started his business from his own failure.  As long as you learn from your mistakes and keep at it you will succeed sooner or later.  Or at least you will keep busy trying.  Most businesses do not succeed the first time around.  It takes perseverance and determination to succeed.  If you are trying to become self employed to spend more time with your family.  Do yourself a favor and forget it.  If your goal is to work less or not as hard, again forget it.  Finally if it is to be in charge and not answer to anyone. Again I suggest forget being self employed.  You will have to not only keep your customers happy, but your employees if you intend to keep the good ones.  If you are still interested in starting your own business make sure it is something you enjoy doing.  To me there is no worse experience than waking up everyday to do something you do not like.  To me anyhow, life is to be enjoyed, not endured.

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