Market your Business to the Lender

When seeking a business loan, the business owner should provide the lender with marketing information about the operation, so that the lender will understand what the business contributes to the local economy and how the borrower attracts other parties to pay for that contribution – in other words, how the business draws in its customers. In doing so, the borrower must adequately define the business, describe how it's currently marketed, and detail future plans for continuing or expanding the operation's revenue base. This information should be compiled in a marketing summary or incorporated into an overall business plan.

The lender of necessity must be made aware of exactly what products and/or services the business offers. The borrower should describe not only what but also how these products or services are provided to the business's clientele. For instance, it's fairly easy to understand a company that sells, for example, salt and pepper shakers, but it takes a bit more study to comprehend and relate to a company that manufactures digitized, variable overdrive power supplies.

The lender should therefore be told precisely what the company does with its products or services. Does the operation manufacture, distribute, retail, resell, liquidate, remodel, research, or remanufacture the products? If services are sold, are they to provide research, information, analysis, advice, or solutions? The lender should be able to thoroughly understand the specific niche that the company serves as well as the particular market that the business addresses. Additionally, if the business owner can distinguish his or her operation as unique, the lender should be made to understand why it is discernibly different from the competition in the marketplace.

It's also incumbent upon the business owner to enlighten the lender as to just how the business operates. After defining the products or services, the borrower should explain exactly how the business manufactures, uses, sells, or provides them. In addition, the borrower should also expound upon the logical sequence of events that defines the normal course of the business's operation. The purpose in all of this is to educate the lender about what the company actually does, so that the lender can gain more insight and thereby (hopefully) be more responsive to what the borrower wants to do with the proposed funding.

Let's use a small bakery as a simple example. The owner of the bakery needs to make the lender understand that – as a regular course of business – it takes twenty minutes to prepare, fry, and glaze ten dozen doughnuts, but the bakery can sell fifteen dozen doughnuts in a span of twelve minutes. Knowing this, it's easy for the lender to appreciate why the borrower wants to acquire a larger capacity for producing doughnuts. We'll return to the bakery later.

It should be noted that two of the most important management tools available to a business owner are: 1) knowing who his or her customers are, and 2) what people can be turned into future customers. This information is crucial to not only the design of the product or service, but also to its pricing, the location of the operation, its capability to perform, and the strategic planning necessary to determine and achieve the business's goals. By sharing this information with the lender, the borrower – in addition to educating – conveys his or her own strength as a manager. Further, the information supports the request for financing because it engenders confidence within the lender that the borrower truly understands the dynamics of the market in which the company operates.

How does the business advertise? The borrower should include in the loan proposal package a description of the ways in which the company markets and advertises its goods or services. There's no particular right or wrong method in which to raise awareness about the business, but explaining the activities and media that the company uses for promotion provides a higher degree of credibility for the operation. The lender should be given copies of any print ads, flyers, brochures, promotional products, or other tangible items that have been distributed to advertise the business. The borrower can also provide a detailed report about media advertising, such as radio, television, yellow pages, billboards, signage, and the Internet. Other important avenues include civic organizations, trade associations and shows, community activities, contributions, sponsorships, youth sports leagues, fund-raising events, or any similar involvements through which the borrower has promoted the business.

Who is the competition? It's very important that the borrower identify other companies that provide the same products or services and that are trying to attract the same customers, and honestly assess the competitors' strengths, weaknesses, and advantages. The market position of each competitor should also be specifically stated. In explaining where the borrower stands in comparison, the particulars of the plan to maintain or increase market share can be brought to bear. The borrower should endeavor to explain to the lender the unique features of the marketplace and the opportunities that the borrower perceives there.

The lender will want to know particularly how revenues will be increased. Among the most important of all information that the borrower can give the lender is a marketing plan describing how the business will boost its revenues. If the loan proposal is to provide additional assets or capital to directly increase revenues, the borrower must support the proposal with a plan detailing exactly how such increases will be accomplished. Financial projections will provide a numerical measure of the revenue increases that the borrower predicts, but the marketing plan should define the basis for those predictions. In other words, the borrower must correlate to specific numerical increases the events that cause them. Revisiting our previous bakery example, if the loan enables the owner to produce an additional twenty dozen doughnuts per hour and the bakery can sell these doughnuts for eight hours each day at $3.00 per dozen, it follows that revenues will increase by $480 per day, or $14,400 per month, as calculated here:

 

20 dozen/hour x 8 hours/day = 160 dozen sold per day @ $3.00/dozen = $480/day x 30 days = $14,400/month

This type of detailed explanation and reasoning lends credibility and rationality to the borrower's financial projections. The process of scrutinizing and describing the correlation between the marketing efforts and financial results also communicates to the lender that the borrower understands both the operational capabilities and limitations of his or her business.

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