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Ask the Expert - Banker
Elena Sisti is founder and chair of Savoy Bank , which opened in June 2008 to provide community banking services to New York City's 220,000 small businesses. Prior to founding Savoy Bank, she spent more than three decades with Citibank, where she held the distinction of being the first-ever female bank manager in the Queens region. Born in Venezuela, she immigrated to the United States in the 1960s. We asked her to share some of her banking expertise and advice for entrepreneurs.
What factors should entrepreneurs consider before seeking funding from a bank?
Do they really need the money? Can they explain what they need and how they will use it in a concise and clear manner? (Role-playing with partners or spouses helps.) Do they have a relationship with the bank? If not, are they willing to move their accounts? Has the bank funded businesses like theirs recently?
It also helps if the business has a track record. Banks traditionally do not like to finance start-ups. If you are starting a new venture, my advice is to go to government sponsored sources such as business outreach centers and Washington Heights & Inwood Development Corporation in New York, which provide microloans and advice to business start-ups.
As a banker, what do you want to hear from the entrepreneurs who approach you for capital?
To start with, what is the purpose of the loan and how do they plan to repay the loan? Does the business have a track record? Have they reported profits? Does the business owner have a thorough understanding of sales revenue sources; do they understand their market and the competitive environment?
Also important to a bank is the owner's personal vested interest in the business. How much of their own money have they invested? Are they willing to personally guarantee the loan?
Lastly, what is the business or the owner's credit record? And how do they handle their business checking accounts? Are there frequent overdrafts, or do they manage their accounts in a financially sound manner?
What are the advantages to seeking funding from a bank (as opposed to venture capital groups or angel investors)?
Several come to mind:
First, banks are more accessible and easier to locate than venture capitalists.
Second, banks lend based on a business's ability to repay debt, as opposed to venture capitalists, which take equity position in the business. That means that in the long term, it may mean loss of control over the business you have created.
Third, banks provide financing for multiple purposes, like to purchase equipment or a warehouse. They also provide specialized financing based on the types of industry; for example, inventory financing, asset based financing and receivables financing.
Also, generally, it's a lot cheaper in the long run, especially if your business increases in value. However, there are times when you have to take on investors, such as when your equity needs exceed the bank's willingness to extend a loan for that amount.
What should entrepreneurs do to prepare for their first meeting with you? What sort of materials/reports/presentation should they bring?
Role-play the presentation. You need to be able to quickly and concisely explain how your business works, what it does, your role in it, what type of loan is needed, how much, what the money will be used for and how it will be used. Understanding your numbers is important, but don't orally present detailed financial and marketing statistics at your meeting with the bank - give it to them in writing and be prepared to answer if asked.
What would you say are the most common mistakes you've seen entrepreneurs make when trying to get funding?
Not knowing the numbers from their own business plan or being unable to cogently explain their business and its needs. Another mistake many entrepreneurs make is not showing profits to avoid paying taxes. Why would a bank provide financing to an unprofitable business?
Of the business ventures you've funded that have been particularly successful, what are the qualities they've had in common that set them apart?
What makes businesses successful are the people that start them and run them. It is truly about the character, business acumen and hands-on involvement of the owners.
We look for work ethic, integrity and management skills that match the needs of the business, and a keen understanding of how their business works operationally and financially.
How important is a good presentation and/or a solid business plan to getting a loan approved (as opposed to financial projections, market research, personal net worth, etc.)?
For a C&I (commercial & industrial) loan, a plan is somewhat helpful for a very small business, but the key presentations to me would be the financials: personal and business credit performance, how well the applicant can explain how her business works and what it needs, where she wants to take her business and how she is going to do it.
In your experience, what challenges do women entrepreneurs in particular face when attempting to fund/launch a business venture?
If you do not have your own credit history, it will be difficult for you to obtain any type of loan or credit, whether personally or professionally. Women may lack adequate sources of seed money. You need to make sure you can cover expenses for the first six months. Some of the funding must be provided by you personally.
Finally, the biggest challenge is (if) they have been out of the work force. Women must develop the business skills necessary to think through their business proposition, be able to implement all elements, manage all aspects of the business and finally, convince bankers, suppliers and potential clients that they can deliver.
What is your advice to women entrepreneurs?
There are many resources available to women entrepreneurs. Make use of all that's available, including micro financing, special grants and networking. Speak to women that have done it themselves. Be brave - have faith, believe in your idea and in yourself.