Pleasing the Bank

We need to get a loan to tide us over as we start to ramp up to our busy season. All the banks have been calling us saying they want our business, and so far we’ve talked to a couple. When we get into the details, we find they are hard to please. While the local reps say they want our business, the higher-ups don’t seem so eager. One bank said they didn’t want our business, another said they needed more information. Is it worth it going through the process? If we don’t get a loan it could be really tough managing cash until all our clients pay up.

THOUGHTS OF THE DAY: Understand what the bank wants. Be prepared to fill out a lot of forms. Ask for a realistic loan amount and repayment terms. Back up what you say with a business plan.

You need to have business experience. If you’re a startup with less than two years of history, getting any bank loan will be close to impossible. You’ll probably do better getting a personal loan and personally lending money to the company until there’s some history to show.

Pick a bank that’s right for you. Credit unions and community banks can be easier to deal with, but generally offer smaller loan amounts. Commercial banks come in lots of sizes and have various optimum client targets. Some banks specialize in real estate loans, others in working capital, while others get excited about funding equipment leases.

Private funding sources typically offer higher interest rates, but less paperwork and faster approval. The SBA backs up loan risks, but the loans still will have to come from the local, regional or national banks that put up the funds initially. If the SBA gets involved expect both additional paperwork and added processing time.

Show that you can pay back the loan — by having a history of doing so. Banks look at both personal and business credit history. If you pay on time, that’s good. If you have a lot of late payments, that’s not good. If you owe taxes, clean that up first.

Get an education before you get started. Discuss the process with your banker, from initial short-form application to final approval. Ask for a critique of your company’s current financial position. Pay attention and don’t get defensive.

In today’s banking environment; it’s all about crossing “t’s” and dotting “i’s.” Expect to slog through multiple requests for documentation — both personal and business. Expect delays, as the banker sends paperwork forward, a credit analyst puts the package together, the credit committee reviews the loan and requests for additional information come back down the chain.

Ask your banker and accountant for advice on how much funding to seek. This is governed more by what you can afford than by what your company needs. The banks are in business to lend AND get paid back. They want to know your company will be able to easily handle repayment, even if some things don’t go according to plan. If you’re concerned about cash flow, ask for a line of credit rather than a term loan, which gives you flexibility on how much to pay each month.

Submit a detailed business plan with personal and business financials and resumes of key players. Provide history and current status on the business. Show how the loan will be used. Conservatively estimate financial results. Provide information on obvious things that could go wrong, how you would handle them and still pay back the loan on time.

LOOKING FOR A GOOD BOOK? Try “Approved: How to Get Your Business Loan Funded Faster, Cheaper & With Less Stress” by Phil Winn.

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