The power of good referrals
By John Hamilton
When you're turned down for business financing, a good referral can put you on the path to "yes."
Business owners looking to raise capital, especially if they've been turned down by a bank, often ask for a blueprint, or chart, to help them make sense of their choices.
It may seem like a reasonable request. But the fact is that financing sources vary widely, depending upon where their capital comes from, their business model, and their interest or motivation, which vary with market and regulatory conditions.
Similarly, a business's reason for needing financing is not always well diagnosed. When it is, the reason can vary based on sector, business stage and what the capital is to be used for—growth, turnaround acquisition, equipment, working capital, etc.
|Ben Fisk of Ben's Sugar Shack worked with a consultant on his financial reporting systems, enabling him to get a revolving line of credit to support his company’s growth.|
For all of the reasons above, distilling this complexity into a visual is impractical. The good news is that there is a user-friendly solution. It’s a good referral.
Instead of having to explain the byzantine paths that connect businesses to the various lenders and investors, strong referrals can make capital-raising process effective and efficient. In the best scenario, no matter what lender or investor you approach first, if it is not the right match, they would refer you to other providers.
For the business, this would mean there is “no wrong door” through which to enter the capital-raising process. Wherever you begin, each referral would get you closer to a “yes.”<
There is as much an art to receiving a good referral as there is to making one. It begins with understanding the specific reasons your loan request was turned down. If it was because you are not “growth ready,” you need a referral to a business education resource, not necessarily another capital source. When the reason is that the provider wasn't a good fit, the referral should be to other sources.
Always ask for more than one referral. After all, personal chemistry matters. The relationship that comes with the money is often more important than the money itself. Getting to know the person who handles the financing is important. Will they take the time to get to know you? Do they have standing to be your advocate when you hit a rough period?
Having your loan request turned down doesn't need to end your search for financing. Get good referrals, and keep moving forward.
Note: Vested for Growth and the Community Loan Fund have developed an online tool to help business owners identify which type of financing might be right for them. Check out Capital Compass.
John Hamilton is the Community Loan Fund's Vice President of Economic Opportunity and Vested for Growth's Managing Director.