As an entrepreneur, you will have to confront the realities of financing a new-business concept. But if you have the proper know-how, you can get the funds you need--and on the terms you prescribe.

How to Prepare a Credit Application

You don't want to go off on a tangent when it comes to financing your new venture. So when you're seeking a loan or applying for a line of credit, make sure you're equipped with all relevant facts and figures. Bankers love details and numbers, and they certainly won't grant your request without full disclosures.

Know What You Have to Offer a Lender

Your mother may lend you money because she loves you. Most other lenders prefer security for their loan. If you have any of the following to offer as collateral, you may be able to get different types of loans for your start-up business.

o Real estate. Generally speaking, you can borrow up to 75 percent of its value minus any mortgages.

o Stocks and bonds. o A late-model automobile (not carrying too much debt). o Collectibles, such as art, rare coins, antiques. o A life insurance policy that has a cash value. You can borrow up to 95 percent of its worth. o Good credit with a particular bank. On the strength of it you might get a personal loan for several thousand dollars. (Establishing that credit is a good reason to borrow and pay back money before you need it.)

o Money in a savings account of the bank you're borrowing from. (It doesn't have to equal the amount being borrowed.) You agree not to withdraw it during the term of the loan. The account continues to draw interest, reducing the cost of the loan.

o A cosigner. A wealthy person with an outstanding credit rating can cosign your loan, agreeing to be liable if you default. (What you give that person in return is between the two of you.)

o Equity in your business. This is what you offer a venture capitalist.

How to Find a Suitable Bank

It's a good idea, if you have the opportunity, to establish a personal relationship with a bank before you approach it for a business loan. Open a checking account and a savings account. Borrow money, pay it back. Establish a good credit record with the bank. If you can develop a personal relationship with a banker, especially a loan officer, so much the better. Of course, we are living in an impersonal age. Just as you are getting to know a banker, you find that he or she has been promoted or transferred to a branch out of town.

But if you can't form a relationship with a banker, you can do so with a bank. And in picking an institution, remember that banks specialize, too. Like all businesses, banks are seeking their own profitable market niches. Some focus on small and medium-sized businesses; others zero in on particular segments, such as the entertainment industry, garment industry, manufacturing, real estate development and even more specialized areas, such as marine (boat) financing.

How do you find the one that's right for you? Get suggestions or recommendations from owners or managers of businesses similar to yours but not competitive with it. Ask your accountant, suppliers, members of your trade association or other local business-people.

Some entrepreneurs shy away from borrowing from banks that lend to their competitors. That's a mistake. The more they know about your business the more helpful bankers can be. And only if they were grossly unethical would they reveal any sensitive information about your company.

In fact, banks that lend to businesses like yours are much more likely to say yes to your loan application than others. They are better able to assess the risk and for this reason usually make up their minds more quickly, and they sometimes give more favorable terms.

Tips on Forming a Banking Relationship

If you haven't been able to form a relationship with a bank before applying for a business loan, investigate the bank you've chosen. Call up and make an appointment with a loan officer. Tell him or her that you are thinking of seeking financing through their institution and you would like to know more about them. While you're there don't be afraid to talk to the bank president and manager, as well as the loan officer--if you can--to get a feel for their operations and their treatment of smaller customers.

Describe your credit needs, ask what the bank can do for you, and try to determine whether others in your field are among their customers. Make sure your banker understands your business--at least to some degree--and "talks your language." Before leaving the bank, get some literature, if you can, on the different types of loans available. Learn about the bank's security requirements for these and other types of loans, and decide which you want to apply for.

When you've picked your lender, call up and make another appointment, this time to apply for the loan. Plan for a long, thorough meeting. Earlier we discussed the preparation of your business plan, including a detailed estimate of the amount of money you need, and a personal financial statement. Take these documents with you. Also prepare a one-page summary, including what the money is to be used for and how you plan to pay it back. Bankers love facts and numbers, so have lots of both. And do your homework to be prepared to answer any questions. If you like, take your accountant or lawyer with you, but plan to do most of the talking yourself.

How to Negotiate the Loan

The best way to proceed is to let the banker look at your executive summary as you talk him through it, then answer questions. For details of the loan itself, refer him to the financial-plan section and go over the numbers with him. There may well be more than one meeting, of course, because the banker may want time to study your full business plan. In the end, the banker may do any of a number of things:

o He may reject your application.

o He may agree to a loan, but for a lesser amount than you want.

o He may agree to the full amount, but charge a higher rate of interest than you think is fair.

o He may give you everything you want.

Except for the last-named, these are items for negotiation. So negotiate. Ask for more than you need, so you will appear to be compromising when you accept less. Be flexible--at least at the beginning of the process. Bankers are as human as you. It is better to work with them, asking them to help you find the solution, than it is to present them with a detailed proposition, saying (or implying), "Take it or leave it." The better attitude is: "Here's my problem. Can you help me solve it?"

In negotiating with a banker, always emphasize the safety of the loan, the security that it will be paid back. There's a lot of money circulating out there, and if you're deserving, you should be able to get your share to start your business. Remember:

Do the groundwork. Know all you can about:

* your business.

* the industry.

* the competition.

* the market.

* your financial plan.

Know your lenders. For example:

* With a commercial bank, emphasize security of the loan.

* With the Small Business Administration, highlight economic and social effects.

* With venture capitalists, show the potential for profit.

Never give up. When faced with a refusal, turn to another source of capital.

Andrea Sandor is a freelance business and finance writer based in Van Nuys.