Business Advice Daily

Tips On Getting A Business Loan

by Matt Berkley

Coupled with the influx of new banks, the increasing demand for small-business loans has created an extremely competitive lending environment. Small-business owners are now in the position to negotiate lower interest rates and more attractive loan structures.

That’s the good news. But securing a loan, for whatever reason—property acquisition, startup capital, refinancing, etc.—is still a prospect that can give small-business owners a real headache.

Charming a banker into giving you money is no easy task. So what does it really take to close the deal?

A business owner’s foremost concern should be whether or not he or she is teaming up with the right bank. Forest Langenfeld, CEO of Peoples National Bank, stresses the importance of finding a good banker to fit your needs. “It is wise to visit with several banks to determine the right fit. Certain banks occupy specific niches in the market place. Finding someone who shares your vision is a huge plus.”

Susan Gibbs, sales manager for small businesses with UMB Bank, says that most banks provide many of the same products and services. What sets them apart is the service they provide once the initial need is met. “My suggestion,” she states, “would be to seek a bank that provides consistent, one-on-one service while providing products designed to save the business money while offering convenience.”

How well do you know your banker? How well do they know you? If you’re scratching your head to either of these queries, you could be in real trouble when it comes time to apply for a loan. Steve Callow, business banking district manager at Southwest Bank, says the small-business owner/banker relationship is a critical aspect of the loan process. “The relationship can only be built over time, so a loan officer’s tenure at the bank is important. It is the loan officer’s responsibility to understand the business of his or her customer. This allows for the loan officer to become a trusted advisor, much the same way as the small-business owner’s CPA or attorney.”

Langenfeld adds, “The best way to build a strong relationship with a banker is to involve them as early as possible in your planning process and then keep them posted on developments as they occur. Bankers are seldom enamored with surprises.”

Okay, so you’ve found the right bank. Now it’s time to get paperwork in order. “The most important documentation we need at the time of a loan request is two to three years of personal and business taxes plus a personal financial statement,” says Sandy Washington, senior vice president and group manager for the Commerce Bank’s central/north St. Louis region. “This information allows our banker to review the company’s cash flow, which is the primary source of repayment for the loan.” Ideally, Washington adds, the banker would also review the company’s financial projections and a business plan, which is a roadmap to a successful business.

A quality business plan can often be your golden ticket. Gibbs says that banks generally like to see a concise description of the business and any experience the owner has had in the particular industry. “In addition,” she says, “banks need to see accurate financial projections, demographics, and level of competition for the industry in the specific market it serves. This will help determine the predictability of future business and provide a comfort level of what will actually occur with the business.”

Langenfeld lists some of the key questions a good business plan should address, no matter what the industry:

* Is there a need for the proposed goods or services?

* Who else is attempting to meet this need?

* Can I make money meeting this need?

* Have I adequately addressed the financial issues surrounding this business venture?

* Do I have the financial resources to properly structure the financing needs of this business?

* Can I survive a few rainy days? If so, how?

Details are important, but this doesn’t mean that bankers are chomping at the bit to see a lot of pie charts and folders thick with intricate battle plans. Jim Hall, president of Pioneer Bank and Trust, believes that business owners who focus too much on superfluous information aren’t going to knock the socks off of bankers. Hall advises that it’s more important to have some simple, solid examples of cash flow.

Another big consideration for lenders is personal credit history. Poor credit speaks volumes about who you are and how dependable you’ll be as a business partner. Langenfeld notes that personal credit is also a key indicator of the secondary repayment capacity of a borrower. “The more leveraged an individual is, the less likely that they can help prop up a business venture. Conversely, a strong borrower with a great credit history and an exceptional net worth can certainly prop up a marginal business venture.”

The worst mistake a borrower can make is showing up to the table unprepared, says Callow. “SBA loan applicants frequently want to meet before their business plan is thorough and complete. This delays the process and causes frustration for the applicant.”

Fortunately, many banks are now offering assistance for business owners wading into the loan process. Other good resources to tap are accounting firms, the U.S. Small Business Administration, SCORE and the Small Business Development Center.

The Carnival of Entrepreneurs Visits The Mogul To Be has chosen this article as one of its “best of the week” (March 16th) picks. You can see it and many other wonderful, inspiring and informational articles at Ben Yoskovitz: Startup Spark.

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