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In Buying a Business, do You Come Off Like an Amateur?
Several times this year, we have received Business Plans from people looking to Finance either a startup or a business purchase. (We are Business Brokers, but have a division that Brokers Commercial Loans. We handle SBA loans and up to one, non-SBA loan was funded for a $12 million re-financing project.)
Most of the Financing request we receive are turned away, almost immediately. The issues normally revolve around RISK! No Lender, no Investor wants to entertain anything that looks like a doomed project, going into it. And most applicants we reject seem to go out of their way to prove themselves as unworthy of a loan, because of things they say and do. Their verbiage, their presentation will often give the Lender the impression that the Borrower has no concept of what he/she is actually getting involved in.
There are a couple of dead giveaways:
There is no god-given right to get a loan. We cannot tell you how many people act that there is such a right, feel they have no responsibility to demonstrate why they need the money, why they feel no need to justify their request and how it is to be repaid. And it is not just how they act; THEY ACTUALLY SAY THESE THINGS to us!
Poorly written Business Plans. The Business Plan – yes, we know we harp on that – is your “sales pitch” to prove your idea. The typing should be well done; the vocabulary should be professional and clear; concepts should be easily understood by the Lender, keeping in mind that he/she may know nothing about the industry you are contemplating. That last point is important, because the use of industry-related abbreviations, as an example, can hinder the Lender’s understanding, and if they do not understand it, they will reject it, out of hand. YOU may know what you are talking about, but you need to read it once you are finished, to make certain the outsider will understand what you are saying.
Business Plans are frequently vague or disorganized. Again, under the premise that the Lender may not know your particular business, all information should be like a linear equation, for you math students: A + B = C. One concept should lead to and build on another and so on, until you reach your result. For example, first you identify that a need exists; second, you state your idea and how it would meet the need you identified; next, you show how that idea is developed or created; then you show how much it will cost to develop; after that, a narrative might demonstrate how it will be managed; finally, a two (2) to preferably three (3) year Pro Forma or projected P&L must be attached. The Pro Forma P&L is your result; the “C” in the A + B = C equation. There are tons of books on writing a good Business Plan. The organization is vital, because again, if the Lender has difficult in reading it, you will get nowhere, fast!
Failure to sell yourself. Keep in mind that the Lenders do no know you. You are not even a face or a voice – you are a piece of paper. You need to demonstrate to them that you have the education, the experience, the sophistication, the skills and the maturity to handle that kind of money and responsibility. To do that, your communication skills will be important, but so will your resume, which should always be included with the Business Plan. One applicant did not want to provide a resume, because he thought it was none of the Lender’s business! Arrogance is not a qualifying trait that Lenders admire, either.
Unreasonableness. We had a very nice, very well meaning guy ask for a multi-billion dollar – that is with a “b” – loan for a mammoth energy plant. Neither he nor his “team” had any background in building or managing such a plant. He had no money to bring to the table. He thought that WE were the unreasonable ones…
Yes, the Lenders are in the business of lending money, and yes they are making money off of the money loaned to you. But YOU are asking THEM for money. They turn lots of people away. You need to impress them with your worthiness, your business’ worthiness, your ability to repay the monthly note until it is paid in full, and the fact that you have worked diligently to show that you have planned and will continue to minimize their RISK. Because RISK is a curse word, among Lenders.
This is also a reason why getting a loan with no money down is not a rational expectation. If you do not have sufficient confidence in your business to invest your own money, why should the Lender feel any more confidence than you? And, if you have not saved any money to invest, the Lender is going to wonder why. They want to know that you have worked your way up in whatever business you have already been involved, have gained some semblance of earning power by showing you have used your skills and worth ethic to get ahead, and have had the maturity to save some of that money. If you have no savings, they do not really care why. For all they know, you have blown your available cash on booze, boats and poker; their worry is if you cannot handle your own money responsibly, you surely will take no greater care in safeguarding theirs.
The moral is, do not come across as an amateur. Loan applications and Business Plans are like that old cliché: You only get one chance to make a first impression. If you blow it, no Lender is likely to come back and ask you why you made a lousy first step. Too many loan applications are coming across their desks, every day. They will just yell, “Next!” And your package will go into the circular file.
(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .
The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)