Knowing how to approach a lender can be an important part of moving your co-op forward. If you need to borrow funds from a financial institution to get your business up and running, Brian Cade, Community Investment Manager for Vancity Credit Union, has some great insights.

Here are five tips from Cade about what he and other lenders look for in a business plan that makes them want to approve loan applications.

  1. Prepare Your Financing Request 

Before meeting with a lender, get prepared. Cade suggests approaching this like an Olympic sprinter approaches a race.

“You need to get everything ready before you get to the start line,” he said. “You need to have your track shoes on, you need to have your uniform on, you need to stretch and warm-up, those are all the things you do before you start…so before the starter’s gun goes, what do you need?”

What you need is to know how much funding you want to ask for, how you’ll use it, and how you’ll cover the costs and repayment. Gather quotes to show what your costs will be for things like equipment and inventory. Also, calculate what you’ll need for working capital to cover bills and day-to-day expenses, and what those will be.

Cade says to focus more on your business needs and less on your business wants. Make sure you’re asking for enough funding – without taking on unnecessary debt.

“Too much debt, especially early on, becomes a real, real burden for the organization and for your opportunity to succeed,” he said.

  1. Perfect Your Pitch

Know your business idea inside and out and be able to communicate it effectively. When preparing to talk to a lender, Cade said to prepare an elevator pitch that includes details about what service or product your business will offer, what need it will fill, and what its objectives are – and don’t forget to practice.

“Try [your pitch] out with folks and make sure they understand what you are doing,” he said,” …and then have them tell you back what they heard. That will really tell you if they understand what you are up to.”

This way, you get to practice marketing your business and refine how you communicate it to others, while crafting a pitch that will help you persuade a lender.

  1. Be Honest About Your Expertise

Be honest and open with your lender about the knowledge you have on your board. A lender will want to know what skills your group members bring to the organization, but they also understand you won’t be experts in everything.

That doesn’t mean you’re off the hook, though. It’s important to show you have a plan to make up for the skills and expertise your group lacks.

“What you can do is also speak to whether or not you have sort of an advisory group or coaches, even folks here at Co-operatives First,” Cade said. “How is it you’re leaning on the skills of folks outside your organization to really shore up where your weaknesses are?”

  1. Put Thought into Your Financial Plan 

Cade argues that your financial plan is the most important part of your application, and that you should put a lot of thought into this section.

“When I look at lending opportunities, when I look at applications for financing on our end, I will typically read the first page of a business plan…and then I will turn what is usually to the back and go immediately to the financial plan, because numbers tell a whole story unto themselves.”

A financial plan needs to demonstrate your start-up costs, equity contribution, anticipated revenues, and expenses. Ensure your financial plan is precise about the costs you need to operate to avoid being under- or overfunded.

Cade said he sees businesses borrow money to open their doors, but then the money runs out early because of unexpected expenses or because the group wasn’t clear on how much they would need. You can avoid this by calculating costs and getting quotes to help determine how much your co-op really needs to get up and running.

  1. Your Cash Flow Projection 

Create a detailed cash flow projection showing how your business can repay the loan it’s seeking. A cash flow projection is an estimate of how cash is expected to flow in and out of the business over a specific period of time, which helps assess its financial health.

Lenders love to see these cash flow projections broken down monthly instead of yearly or quarterly, Cade said, as it shows income, revenue, and costs. A broken-down projection will also highlight how the business’s cash flow might change depending on the season. Is it busiest in the summer? Does business spike over the holiday season? These trends are important to note.

Cade suggested developing cash flow projections for a few scenarios — conservative, realistic, and aggressive. This will help you plan for the worst-case and best-case scenarios.

Watch for more

Like these tips? Get even more by watching the complete webinar with Cade to hear all 10 of his tips for approaching lenders. Also, check out the Biz Plan Generator to get started on your business plan!