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  #1  
Old 03-27-2007, 08:45 AM
spex x spex x is offline
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Default Think like a bank

Imagine that you own a bank. A prospective small business owner comes to you for a loan. What types of things would you look for in his personality, his business plan, etc., to make you feel comfortable risking your money? What types of terms would you like to get for your risk?
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  #2  
Old 03-27-2007, 09:29 AM
livinitup0 livinitup0 is offline
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Default Re: Think like a bank

Personal credit score....initial capital bankroll if you dont have a day job. And whether or not the buisness plan looked professional and halfway realistic.

Believe it or not, Banks want and need to lend out bad loans once in a while. There are some banks out thre that make the majrity of their money from collections accounts.
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Old 03-27-2007, 09:50 AM
spex x spex x is offline
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Default Re: Think like a bank

[ QUOTE ]
Personal credit score....initial capital bankroll if you dont have a day job. And whether or not the buisness plan looked professional and halfway realistic.

[/ QUOTE ]

Why personal credit score? What is a 'halfway realistic' business plan? What specific items would you look for in the BP to make you confident that your money is safe? How much is a safe initial capital bankroll?

[ QUOTE ]

Believe it or not, Banks want and need to lend out bad loans once in a while. There are some banks out thre that make the majrity of their money from collections accounts.

[/ QUOTE ]

The point of the exercise is to think about how you would like to lend out YOUR money, not how you thing that banks lend out their money. Lets assume that if your hypothetical borrower defaults you can recover approximately 40% of your borrowed capital. What types of things would you look for in someone who is trying to borrow YOUR money?
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  #4  
Old 03-27-2007, 11:02 AM
pokerbobo pokerbobo is offline
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Default Re: Think like a bank

[ QUOTE ]
Imagine that you own a bank. A prospective small business owner comes to you for a loan. What types of things would you look for in his personality, his business plan, etc., to make you feel comfortable risking your money? What types of terms would you like to get for your risk?

[/ QUOTE ]

When I went for loans to start my business....they cared about only one thing. Collateral. The bank officer was not interested in even looking at my business plan...it did not matter to him if I could not secure the loan with stock, real estate or some other asset.
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  #5  
Old 03-27-2007, 12:10 PM
spex x spex x is offline
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Default Re: Think like a bank

[ QUOTE ]
[ QUOTE ]
Imagine that you own a bank. A prospective small business owner comes to you for a loan. What types of things would you look for in his personality, his business plan, etc., to make you feel comfortable risking your money? What types of terms would you like to get for your risk?

[/ QUOTE ]

When I went for loans to start my business....they cared about only one thing. Collateral. The bank officer was not interested in even looking at my business plan...it did not matter to him if I could not secure the loan with stock, real estate or some other asset.

[/ QUOTE ]

That sounds like a poor way to make the decision on a loan IMO. I wouldn't loan money to someone based solely on collateral - loan defaults are highly -EV. Would you? If not, what would it take to convince YOU PERSONALLY to loan a stranger money to open a business?
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  #6  
Old 03-27-2007, 12:16 PM
spex x spex x is offline
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Default Re: Think like a bank

[ QUOTE ]
Imagine that you own a bank. A prospective small business owner comes to you for a loan. What types of things would you look for in his personality, his business plan, etc., to make you feel comfortable risking your money? What types of terms would you like to get for your risk?

[/ QUOTE ]

Clarification: This is an exercise to get this forum brainstorming on how to both raise money to open a business or expand an existing and to help in basic business planning (i.e., planning for growth, marketing, etc.). The things that will convince you to loan your own money to others are the same things that will convince a bank, or family, or friends, or investors, to loan you money. So lets imagine a perfect stranger walks into our office and asks for a loan. How do you analyze his plans in order to assess your risk? How do you know if he'll be successful? What specific types of things would YOU look for to assess the merits of his plan? After all, you're loaning him money on the assumption that he'll be successful and be able to pay you a healthy interest rate.
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  #7  
Old 03-27-2007, 12:25 PM
Tien Tien is offline
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Default Re: Think like a bank

Good question, I would try and think like warren buffet and imagine myself "buying" his business. Would I do it?

Personality: Someone who is really passionate about his own business. Someone that wants to learn as much as possible. To me, I look into someone's eyes to determine the level of passion he has. If I do not feel like he has passion, I won't invest.

Business plan: Must be a very well thought out realistic business plan. Must have 1 year goals that are realistic, must have 2 year goals, must have up to 10 year goals for me to bother looking into.

Character: I want to know what is mission in life is, his purpose for waking up everyday. That is the most important to me. If I know his purpose is strong enough to continue to plow through the bad times, I know my money is safer.

Terms: Depends how risky his business is. I only know real estate and would adjust my terms based on the level of security.
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  #8  
Old 03-29-2007, 08:57 AM
spex x spex x is offline
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Default Re: Think like a bank

This thread isn't working at all the way I hoped. I was hoping to start a lively discussion about what it takes to succeed in your own business. Any ideas as to why this thread has been such a failure? Was the question difficult to understand? Was the scenario confusing? Suggestions?
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  #9  
Old 03-29-2007, 09:39 AM
Evan Evan is offline
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Default Re: Think like a bank

spex, you should probably clarify what sort of business you are talking about.

Bank loans aren't really a reasonable way to fund a startup. They're just not in the business of investing in equity and startups don't make any sense as entities to force structured payments upon. You're going to severely limit the upside potential in almost all cases and you're going to increase the failure rate at the same time.

The only loan agreement that would even be applicable would be something with no payments for a certain amount of time. To compensate for that risk the bank would have to charge extremely high fees. The point is that most (really all) startups (which I think you're talking about) just make more sense for equity funding. Both the investors and the founders end up with much better terms.

A question like "what makes a good business plan" is basically impossible to answer. Well thought out and complete reasoning is about all I could say without having more details. It's like asking "what makes an idea good?"


Tien, do you really care what they write as a 10 year goal? That is almost never going to have any meaning even 2 years from now. Business structures and outside conditions can change so much in that sort of time span that trying to project that far into the future is really useless. For many businesses (pretty much any sort of web service, for instance) it's probably not even worth reading their 1 year plan. Read stuff from any successful startup founder and you will see that even core fundamentals of the business can change 180 degrees in the first few months.



If you're talking about something like opening an auto repair shop or a bakery or something a lot of this won't apply.
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  #10  
Old 03-29-2007, 10:59 AM
spex x spex x is offline
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Default Re: Think like a bank

Ok, good suggestions. What I was thinking was that since most of the participants on this forum are new to business and just starting to learn, I'd try to get everyone thinking about what specific things make a business successful. I thought that I could do this by trying to get everyone to imagine the types of things that they might look for in a startup if someone asked them for the money. Obviously this didn't work. I'll respond to some of your ideas below.

[ QUOTE ]
spex, you should probably clarify what sort of business you are talking about.

[/ QUOTE ]

Yeah, I considered that but intentionally decided not to specify. That is because I wanted the thread to have a wide appeal and I know that forum has a diverse range of business interests. But maybe you're right.

[ QUOTE ]
Bank loans aren't really a reasonable way to fund a startup. They're just not in the business of investing in equity and startups don't make any sense as entities to force structured payments upon. You're going to severely limit the upside potential in almost all cases and you're going to increase the failure rate at the same time.

[/ QUOTE ]

yes yes, I understand all this. Of course you are right. BUT, the intention of the post was to get the forum thinking theoretically about what it would take to analyze businesses. The (intended) post is really only partly about financing businesses. It is also about analyzing your business ideas and plans objectively. The question is this: what would it take for you, EVAN, personally, to give me, a perfect stranger, money to start a business? What types of things would you look for to make you comfortable making a loan? So its not about banks or types of financing per se. At least, I didn't intend for it to be.

[ QUOTE ]

A question like "what makes a good business plan" is basically impossible to answer. Well thought out and complete reasoning is about all I could say without having more details. It's like asking "what makes an idea good?"

[/ QUOTE ]

I totally disagree. IMO, there are a few very specific things that I'd look for in a BP, regardless of the type of business, to figure out if the person asking me for money 1) knows what they're talking about, 2) knows the industry they hope to enter, 3) has a realistic plan for making money, 4) has a realistic plan for growth, and 5) has the ability to make the biz work.

[ QUOTE ]

Tien, do you really care what they write as a 10 year goal? That is almost never going to have any meaning even 2 years from now. Business structures and outside conditions can change so much in that sort of time span that trying to project that far into the future is really useless. For many businesses (pretty much any sort of web service, for instance) it's probably not even worth reading their 1 year plan. Read stuff from any successful startup founder and you will see that even core fundamentals of the business can change 180 degrees in the first few months.

[/ QUOTE ]

Yeah, a good BP only lasts as long as its first contact with the marketplace....


[ QUOTE ]

If you're talking about something like opening an auto repair shop or a bakery or something a lot of this won't apply.

[/ QUOTE ]

Hmmmm.....I guess you are probably right. And I am talking about traditional B&M businesses because that's what I know about. I guess that e-businesses might be somewhat different. But I'd guess that the two aren't so dramatically different.
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