Business Q&A: April 21

I am trying to start a business and need funding, should I approach a bank first and then comprise a business plan or write a business plan and then approach a bank? Lincoln, NE

If funding from the bank is the only option to fund your business, then I would first suggest to approach your personal bank and communicate your intention. A business plan can be written about a million different ways and identifying the person or persons evaluating your business is highly important. In all likelihood, the first question the bank will ask you is “how much money do you need”. This is a loaded question. If you throw a number out there, the next question, most likely, will be “how is the money going to be used”? That is where most people get stuck and a business plan is required. I suggest when approaching a bank to have prepared questions to ask the bank. Each bank is different in their preferences toward a business plan. Some may want 3 years of financial projections, others may require only 12 months, some may want a very detailed marketing plan, while others are more concerned about collateral requirements. Here are some common questions I would suggest asking your banker at the preliminary interview. How much owner’s equity is usually required? This is the amount of money you personally have dedicated to the business venture. This “skin in the game” amount may range from 10-30% of the total amount needed. Second, what kind of collateral is preferred? Some banks prefer real estate, while others prefer automobiles. Finally, what types of businesses do they prefer? Depending on their portfolio, they may have a large number of restaurants on the books, therefore they may not be interested at the present time to lend to small businesses in the same industry. Rule of thumb, get as much information as possible.