When applying for a loan, small business owners and loan officers trade hundreds of pieces of paper, and dozens of numbers and ratios are crunched. I would like to suggest five subjective elements of the process that often get overlooked, and which, in my opinion, are critical elements of a successful company.
Would, and have, the entrepreneur lend themselves the money?
In our work at MultiFunding, one of the first questions we ask an entrepreneur is “would you lend yourself this money and are you willing to bet your house?” If there is a moment of hesitation, it’s time to dig and understand why. Sometimes, it’s a sign of a business in trouble. Other times it’s an indication of a plan that has not been properly thought out. Or perhaps it’s an indication of an entrepreneur who doesn’t believe in himself and/or doesn’t have the backing of hi family.
Whatever the reason might be, if you’re an entrepreneur looking for money, it’s really smart to ask the question “would you lend yourself this money.” If the answer is no, be ready to ask yourself why?
Do customers of the business recommend the product or service to their friends?
A critical element of a successful business is happy customers – and we don’t think loan underwriters talk to customers nearly enough as part of their due diligence. It’s fairly simple. If customers love a product or service, and actively tell their friends about it, that’s usually a great sign of a successful business. If customers churn and burn in a business, there is an imminent problem on the horizon. These issues often get forgotten in the underwriting ratios that get crunched.
Are the employees of the company happy, engaged, and committed?
Do the employees of a company love coming to work? Are team members engaged and happy? What is the employee turnover? Would employees jump out of a window to help a company succeed or would they prefer to jump out of a window instead of coming to work? A happy team is a critical element of a successful company, and it is one that usually never comes up in the loan process.
Does the small entrepreneur have a mentor or mentors who they rely on and bounce ideas off of?
Being an entrepreneur is a lonely and frightening adventure. Every good entrepreneur needs and deserves a good mentor. I would love to see loan officers ask to talk to the mentor. How well does the entrepreneur take advice? Does he actively like to bounce ideas around? How flexible and nimble is he in his thinking? These are critical elements in a world that constantly changes.
With a snap of the fingers can the entrepreneur produce a current financial report about their business that they can explain and understand?
Entrepreneurs who run their businesses without understanding the fundamentals of the numbers are like drivers driving around town with their eyes blindfolded. Good, accurate and timely accounting is a critical component of success that should not be overlooked.
I would bet my money on almost any company that met the five criteria above. Your ideas and thoughts are most welcome.