Want to feel stupid, incompetent, and a bit foolish? That's how some business owners describe themselves after meeting with lending institution loan officers. Like beggars, they complain, they must plead their case, jump through hoops, and just about put up their first-born child as collateral.

Exaggeration aside, many business owners find securing lines of credit or other loans can be a frustrating ordeal. Many would turn their backs on lenders if they could.

But credit is the lifeblood of many small businesses. Owners count on borrowed cash as working capital to round out inventories, manage emergencies, and get through periodic cash flow droughts, as well as for bigger projects such as to finance expansion plans. They simply cannot function effectively without access to credit.

Why is it sometimes so hard for lenders and business owners to see eye to eye?

The #1 problem: Lack of communication makes it difficult to negotiate loans so that both sides are comfortable with the outcome. As a rule, bankers and small business owners approach the question of lending and borrowing money from two distinct points of view. And, yes, the burden often falls on you to educate, to impress, and to convince a lender to provide you with needed capital on win-win terms.

Actually, obtaining financing may not be all that difficult. And you can do it without having to get on your knees. Assuming you're not on the verge of bankruptcy, it's pretty much a matter of knowing how to ask. Try the following:

• See their point of view. The only thing lenders care about is your ability to repay the money. Many are skittish when it comes to working with small businesses, and their caution is often justified when you consider that small businesses have a high failure rate. So, make sure you look like a credible risk, not a shoestring operation on the verge of collapse.
• Help them arrive at the decision by doing a little selling. As a rule, lenders are not imaginative, entrepreneurial types. You must motivate them, inspire them, sell them on your vision. Prepare a short presentation, and provide a brief company history with a copy of your mission statement.

• Have the numbers ready. Most lenders are number crunchers. They'll want to study the figures. Put together a balance sheet or income statement and a summary business plan (description of why you want the money). Make sure everything looks professional and business-like and spells out how and when you intend to repay the money. Some business owners draft an actual loan proposal, complete with amounts, terms, and rates. It certainly can't hurt.
• Approach several lenders. If one turns you down, move on to the next. This increases the odds of getting the money and can give you leverage when negotiating rates and terms. Best of all, shopping around gives you options and eliminates the need to beg.
• Negotiate rates and terms. Within the limits of prevailing economic conditions, there is generally some built-in flexibility, based on your credibility as a risk. Ask for the most favorable rates. Then negotiate every item and term. It could save you thousands of dollars in costs.

The Bottom Line
Your goal is to make the lender feel comfortable with the idea of entrusting you with the institution's money. By combining sound financial data with a clear plan, clearly expressed — along with professional charm and salesmanship — you should have little trouble obtaining the financing you need.

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