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Funding Your Startup: Explain your grandmother what you are doing!

How many times in my career I received loan applications from startups and, even after reading the executive summary ten times, I didn’t understand what type of business they were in….

Credit risk analysts in banks are mostly ‘generalists’, in one day they look into applications for a highly specialized software development company and later into the application of a bakeshop (and nearly everything in between).

Problem is that when analysts don’t get an idea after reading the first paragraphs, perhaps they stop reading. To avoid this, a few tips & tricks:

 Explain to your grandmother what you are doing!

Explain to people who are not working in your sector or niche and who don’t talk the typical ‘mumbo-jumbo’ of your business, what you are doing, what your goals are and how you want to realize your goals. It is not the easiest exercise but I promise you that you will learn a lot about your business. In explaining your business model in ‘human language’ you will discover points you can do better, faster, cheaper… That is why in marketing the use of consumer forums is a common research strategy. Write in simple language, in short sentences, with simple words.

  • Explain clearly what you are asking for and why.

Make clear in a few lines what financing you need and why. Don’t forget that analyst starts his analysis while reading. He knows already about the sector you are in, what you are doing and what financing you are looking for. Be sure he has connected the dots and has already an idea.

  • How and when will you be able to pay back?

 For a risk analyst is this important. When you explain in a clear and realistic way how you plan to pay the loan back and the timeline you plan to do this and it fits the other points you can be sure the analyst will be interested and will go on reading.

 The executive summary of your loan application (or the cover letter) is the most important document in the procedure to get funding for your startup. It has to get the attention of the analyst for your business and has to convince him to read and study all the elements of your plan. All the other pages of the loan application are there to document the executive summary or cover letter.

 When I mentor startups and SME’s with their loan applications, the executive summary is the first thing we are working on. The entrepreneur has to explain me, in simple language (I am like his grandmother) what is business is all about. Once the first paragraph is done (in fact it is about ‘who is asking’) we start to work on the other elements:

–          What are we asking for?

–          Why are we asking?

–          When will we pay back and where will the money come from.

The executive summary is maximum 2 A4 sheets. And as Albert Einstein said ‘If you can’t explain it simply, you don’t understand it well enough’.

 Conclusion:

–          Be clear

–          Give the analyst the information he wants and convince him to read the whole plan

–          Keep it simple

 © Raf Vlummens 2016

Raf Vlummens is a Certified Credit Risk Analyst and worked for more than 30 years as a credit risk analyst for major banks in Europe, Africa and Asia specialized in startups and small businesses. He is sharing his experience on his blog https://EntrepU.wordpress.com .

As consultant he is advising and assisting startups and small companies with their loan applications to get the funding and loans they need for their business.

Contact: CrediCoach@gmail.com

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3 Comments

  1. nice article raf! thanks for sharing it on trh. and thanks for sharing kritika’s article on your website as well!

    would you be able to share an awesome cover letter as an example and the ideal executive summary with us to help newbies? that would be awesome!

    ps: pls add your twitter handle at the end of your post – helps me while sharing over social.

  2. I will share a cover letter/executive summary for a loan application like risk analysts like to read…

    It is really that one sheet of paper whom decides for 80% your loan application. So not the 100 Excel-sheets, the flashy Powerpoint bu one sheet of paper. If the analyst attracted to your cover letter, she/he will perhaps browse your document but never analyze and prepare a loan proposal. And that is what a risk analyst does.

  3. Funny! I use the same logic – except I ask ‘bankers’ who try to sell me toxic crap to first sell it to my Cook (who is illiterate) but the smartest guy with money I’ve ever seen!

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