By: John Wilson
Chief Lender, Executive Vice President
A few years ago, John Maxfield, senior vice president of commercial lending here at INB, was approached by a man who had gained experience in a certain industry and was interested in starting his own company in that industry.
“He was very sharp, he had a business plan and detailed projections for his new company,” John said. “We set up his funding, and that business has just exploded; he’s receiving major contracts now. His timing and execution were absolutely key to his success.”
Recently, researcher Bill Gross, founder of Idealab (an incubator of new inventions, ideas and businesses) studied hundreds of companies to figure out why they became successful when so many others fail. He discovered some qualities that set those companies apart: the top three components of success were, in order, timing, execution and ideas. He cited successful start-ups like AirBnB and Uber as examples of great timing, and he outlined his findings in his popular TEDTalk “The Single Biggest Reason Why Startups Succeed.”
“Timing is a huge reason for success,” agreed Tony Gavin, commercial loan officer for INB. “If you’re getting into a business that’s already saturated, it simply won’t work well, but it definitely helps getting in at the beginning. Each company is so different, so it’s rare that we look at the same type, but we really try to do our due diligence and run each idea through the channels. It also seems that the more research a local startup does, the more likely they are to be successful.”
Business Planning Important
Business execution begins with preparation, and most successful startups that we have helped launch in Central Illinois have come to us with detailed business plans. John said most new business owners have been working through their ideas for months or even years. Area resources such as the Small Business Development Center help these entrepreneurs create business plans at no cost.
When considering a loan, John said, “Someone that comes to us with a detailed business plan is going to have the upper hand over someone who just has an idea they came up with three weeks ago.”
Without having historical numbers as a foundation, startup business projections are simply an educated guess, and my team makes it a point to help starting businesses focus on the numbers, John said.
“With startups, funding can be risky, so the first question we address is, ‘How much do you need and what do you need it for?’ Sometimes they think they need a lot of money, but we often try to get them to whittle that down if they can,” he said.
When startup entrepreneurs come to INB for a commercial loan, bankers review certain qualifications, from personal credit score and past credit history to business projections and the local market.
“If they have some experience in the industry, that can be helpful, whether they’ve worked for another company in the industry or started in their home on a small scale and now they want to grow the business,” John said. “Maybe they have to buy high-priced equipment or advertising dollars or inventory to stock a new store, but usually, the bigger the number, the more careful you have to be.”
SBA Helps Small Businesses Document Plan
INB is a preferred lender with the Small Business Administration, which is a tremendous resource for many starting companies.
“The SBA is a great partner,” Tony said. “John can approve certain loans within parameters set by the SBA, and they guarantee a loan up to a certain percentage. That can be helpful to a lot of startups who may have a shortfall in cash or collateral for the loan; the SBA helps bridge that gap.”
Every detail is important when considering the success of a start-up business.
“Sometimes, it’s as simple as location,” Tony noted. “I recently helped a start-up microbrewery, who connected with a well-known restaurant and opened next door. It was a good opportunity for a new market in the area, and although we made tweaks to their original business plan, they had put in a lot of initial effort and thought through many components of opening the company.”
INB strives to work in conjunction with new businesses; sometimes, even if a start-up doesn’t qualify for a loan, INB’s commercial lenders can point people to areas of strength and areas that need work when it comes to a business plan.
“I had one woman who wanted to start a restaurant, and she didn’t have anything except experience,” John said. So he wasn’t able to make the loan. But John had given her some advice, which she put into action, then came back several weeks later. He was able to make the loan. He added, “Sometimes you can coach people and help them to qualify for a commercial loan down the road, even if we can’t make the loan today.”