Editor’s note: This article was first published in February 2011, during Spain’s credit crunch. Its remarks that banks lend less than “a few years ago” and that internet projects were getting the most funding reflect that moment.
As we’ve discussed on other occasions, despite the common claim that banks have turned off the business credit “tap”, the reality is that they are still lending. Certainly less than a few years ago, but the money is still there.
In our regular conversations with bank managers and branch officers, most of them point to the main reason a business loan is turned down: the presentation of the business plan, the project’s lack of viability, and the entrepreneur’s “failure” to explain or show where the business’s profits will come from to repay the loan or credit.
The business plan has to be professional. It doesn’t matter whether your project needs €10,000 or €100,000: the presentation should be exactly the same.
The business plan, and the way you present it to whoever decides on your loan or to an investor interested in investing in your business, must be realistic, yet ambitious. Let’s stop for a moment on that point about ambition.
The bank doesn’t want to see a pessimistic entrepreneur, nor someone who hints that they’re going to “gobble up” the entire market.
If Google had gone to a bank to ask for a loan and told the manager it would dominate the worldwide internet search market and become the most valuable company in the world, Larry Page and Sergey Brin would have been thrown out by the bank’s security as madmen, and the same would have happened to Mark Zuckerberg (Facebook).
On the other hand, the entrepreneur shouldn’t come across as desperate to get the loan because, ironic as it may sound, the bank helps those who need help the least. A bank wants to be one more option, not the only option. To get an idea of what a highly professional business plan should look like, see this article: How to structure a good business plan.
If, after preparing your business plan, working out every detail and presenting it at the bank with coherence and enthusiasm, your loan application is still rejected, don’t lose heart. If you’re sure your business is going to work and be a profitable business, it will be, with or without the bank.
Being refused a loan isn’t the end of your business, because there are other alternatives. The business ideas that are supposedly getting the most funding are internet-related projects. Then again, not just any internet-focused business plan will get financing, and the steps to follow are the same.
If you decide to start an online business, our next article explains the financing options you have to get it off the ground: Where to find funding for an internet business idea.
Further reading
Featured image: Dave Dugdale, CC BY-SA 2.0, via Flickr.
