For cooperatives, getting loans from traditional lenders like banks can be challenging. It’s crucial to know the best practices when approaching traditional financing methods before approaching them for financial assistance.
Preparation is a key step in both business development and obtaining funding for your business.
You need to realistically consider the pros and cons of your financial situation, individually or as a group, and be prepared to discuss these pros and address the cons where necessary.
- Start by evaluating your financial situation and the financial situation of your fellow founding co-op members. You will want to collect documents from all founding members and evaluate personal income, credit scores, debts etc.
- You will then want to decide whether it is in the best interest of your cooperative to obtain funding individually (e.g., one member has outstanding credit and is willing to try and obtain a loan) or collectively (e.g., you all pool your resources and sign together for a loan). You can receive one free credit score per year at this government-sponsored site.
- You will want to bring all financial documents with you when speaking to financial officers. Be sure to cast a wide net, bringing more documents is better than bringing less. Do not neglect any information that is less favorable to you (e.g., a bad credit score or default on loans).
Understanding The Bank’s Perspective
A bank is a business. They want to reduce their risk and increase their returns. It is important to understand that bankers, loan officers, or whomever you are dealing with at a financial institution have to follow the bank’s standards. These standards are not all the same and some are less difficult to overcome than others. Ultimately, a financial institution will be interested in knowing how much money you want, what you plan on doing with it, and how you are going to pay the money back (on time!).
Pay Attention to Detail
Details are key! It is important to incorporate the details of your financial history. Make sure you address a negative financial history and or point out the strengths of your business when obtaining a loan. A financial institution should not have to search for necessary and persuasive information about you or the business. Present all the details of your unique financial circumstances to the bank clearly. Also, being detailed and thorough will only make the process run more smoothly.
Follow-Up/Be Creative/Keep At It!
Receiving financial assistance in the form of a loan is undoubtedly a difficult and time-consuming process; however, persistence is the key. Many small businesses face hurdles when they are just beginning. Do not let a few undesired events get in the way of your business’ success. Be creative when preparing for and communicating with financial institutions and potential investors. Remember not to burn bridges and do not stop trying when one door closes.
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