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      Home LAUNCH Funding Bank Finance

      Bank Financing

      Greg Fisher by Greg Fisher
      Oct 31, 2009
      in Bank Finance
      10
      Bank Financing
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      RelatedTopics

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      If a bank does get involved with a start-up business, they seek enterprises that adopt a tried and tested approach to doing business, such as a franchise. Banks may however be willing to fund certain assets for a start-up business, such as plant and machinery, and they will also be willing to provide capital to a small business that wants to grow.

      When developing a business plan for a bank, the three most important things to focus on are:

      1. Risk mitigation.

      Bankers granting a loan to any organisation want to know that they are minimising their risk. They are not looking for the hefty returns demanded by VCs, but they are looking for assurance that the loan they grant will be paid back with the requisite interest. They also seek to make loans where they will have an opportunity to recover the value of the loan with the sale of assets or surety if the company does fail.

      Therefore, if you are preparing a business plan for a bank, focus first and foremost on risk mitigation. Make the venture seem as safe and solid as possible, address issues of risk and have risk mitigation strategies highlighted in the plan.

      2. Cash flow.

      For a loan to be repaid, a business needs to generate cash flow. Bankers will therefore pay a great deal of attention to the cash flow forecasts of a business. They will ask themselves these questions:

      1. Are the assumptions underlying this forecast reasonable?
      2. What is the probability of this forecast coming true?
      3. What is the worst-case scenario?

      That’s why you need to focus on creating strong assurances around cash flow forecasts in developing a business plan for a bank.

      3. Familiarity, understandability and verifiability.

      To feel comfortable providing a loan to a new business, a banker has to recognise and understand the proposed operation of the new business. The more radical or disruptive your ideas, the less likely they are to look favourably on the venture. In a business plan for loan funding use recognisable examples and familiar language to explain what you are doing.

      Bankers also like things that can be verified, such as reference to a commitment for a long-term customer contract – if they can see a signed copy of the contract and corroborate it with the customer, all the better for the entrepreneur seeking the capital.

      Therefore, as you prepare a business plan for loan funding make sure that all the key elements of the business, described in the plan, are familiar and recognisable to a banker, help them understand the business and provide verifiable evidence for what you say wherever possible.

      Greg Fisher

      Greg Fisher

      A master of strategy, Greg Fisher is a Professor in the Management and Entrepreneurship Department at the Kelley School of Business, Indiana University and is also a visiting lecturer at the Gordon Institute of Business Science (GIBS) in South Africa and at the SKK Graduate School of Business in South Korea. He teaches in the areas of strategy and entrepreneurship and he has won teaching awards at Indiana University, the University of Washington and GIBS. He holds a Ph.D. in Entrepreneurship and Strategy from the University of Washington in Seattle and an MBA from GIBS. Greg Fisher was named on The List of the ‘40 Most Outstanding Business School Professors under 40’ in the USA in 2014 and in 2016 he was named among the ‘Favorite Business School Professors Teaching MBAs’. He teaches in the areas of strategy and entrepreneurship and he has won teaching awards at Indiana University, the University of Washington and GIBS. He holds a Ph.D. in Entrepreneurship and Strategy from the University of Washington in Seattle and an MBA from GIBS. Greg Fisher was named on The List of the ‘40 Most Outstanding Business School Professors under 40’ in the USA in 2014 and in 2016 he was named among the ‘Favorite Business School Professors Teaching MBAs’.

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