Loan Applications For Your Invention
Histories of technology often mention the inventor approaching a bank manager to whom he or she gives such an impressive demonstration in the office that the entire staff gathers round to watch, and a large loan with few strings attached is approved immediately. While some of those stories may be true, it is, unfortunately, much more likely nowadays that a bank would turn down such an approach, or would require a level of collateral which would hinge the inventor’s family life entirely on the success of the invention. And if there’s one piece of advice which repeatedly comes back from inventors who’ve learned the hard way, it’s this: Do not use your home as security for a loan.
Presenting Yourself as an EntrepreneurSo what’s the best way to do it? In today’s society, presenting yourself as an entrepreneur — a businessperson looking to involve the bank in a mutually profitable relationship — is essential, even if you think of yourself as a ‘garden-shed-in-your-spare-time’ inventor. If your business takes off, quite apart from the interest on the loan, the bank will want to have you as a customer, since business banking charges are a significant proportion of banks’ income. From your point of view, having an advisor at the bank who is also dealing with a number of other small businesses at various stages of development may also allow you to learn from their trials, tribulations and successes.
Business PlanThe important part, then, of getting a favourable loan, is to prepare a credible business plan which presents your invention in a commercial context. This is not easy, since so many variables are unknown at this early stage, but there are some excellent guides and advice sessions available from local Business Link organisations as well as the banks themselves. You will need to consider how much ready cash you will need to pay for the next stages of the invention’s development, outline clearly what stage you’re at, and what the subsequent stages will be.
Gaining CredibilityIf you have already submitted a patent application, this will probably help your credibility, but you may need the loan to pay for this in the first place, in which case your plan will need to be explicit about what each aspect is going to cost. Equally — a point that recurs frequently on programmes such as Dragon’s Den — do not expect to use the loan to pay yourself a salary until the business is at least closer to generating its own cash. Realistically, you will need some other source of income during the earliest stages. Until the business is creating cash flow, you’re something of a liability rather than an asset.
There are ways of wording the business plan and loan application which will demonstrate to the bank that you understand enough about business to be a better risk; reading a few example business plans, or asking to read others’ (for example at an Inventors’ Club) will give you a good feel for this.
In some cases, this will also give you more flexibility: making clear to the bank that the business plan is necessarily a ‘live’ document which will be updated in line with the business’s development is a better tactic than trying to pull figures out of the air for future expenses and incomes which you are, truthfully, unable to predict.
In summary, make your loan application and the accompanying business plan conservative but positive. Don’t try to pull the wool over the bank’s eyes about financial matters (you’re unlikely to succeed) but do play up the strengths of your invention as part of a new business, run by a dynamic and competent entrepreneur (yourself), which within a few years may become an important client for the bank.