Have you recently tried a bank business loan?
If you’ve been trying to get a bank loan for your business recently, you know it’s not a slam dunk. SBA loans and credit promotions are great for minority or women-owned businesses, but that’s another story when you go nostalgic with a banker.
Some of the reasons it seems so inconvenient is that many creditors feel that they owe you money instead of the bank. They have a personal responsibility to maximize repayment.
Another is that they are particularly suspicious of new businesses. Since 4 out of 5 or 80% fail in the first three years, most lenders require a three-year history of doing business.
Finally, the decision-making process has taken all of the banking mergers and acquisitions away from the regional branch. Add up all these reasons, and then you’re better off getting the banker ready to mess up.
Here are some tips to make lending more attractive to your bank. First, start with a two-part presentation. Provide a brief description of your loan application first. This overview includes:
Business Quotes from your business plan about your business concept, management team and financial projections.
Business Overview of Your Business Principals’ Credit History.
Short answers to major lender questions about how much you want, how you use it and how you repay it.
This should be a two to three page document, which can be considered a mutual qualification. It determines whether the bank is interested in lending you funds before you roll the wheels for hours in front of the loan officer. You may want to complete the document with your telephone number so the banker can call you back for an appointment or a discussion.
If you’ve amazed the credit officer enough and made an appointment to meet him, it’s time to set up “big guns.” The ammunition you have prepared is a three-year personal tax return for all principals and existing businesses of your company. Include all principals’ credit reports, complete and attractive business plan, and guarantees and capitalization information.
This seems like a lot of information and would require a lot of effort, but that’s not why business ownership is for everyone.
In addition to getting ready with all those documents, be prepared for questions that may be off the wall that the lender may pose to you. Take the time to think and start a 30-second ad about what you plan to do and how it will benefit them and your business.
Be prepared to explain the credit gaps in the credit reports before the banker has a chance to worry about them. Make sure you are able to show understanding and awareness of “cash flow” without ruining any business. Plan your most realistic estimated cash flow and bank account balance. Make sure the bank balance is never negative, and show the credit repayment as a separate line item for a good touch. This shows the banker you understand the priorities.
A collateral may be needed to satisfy the lender’s anger over the repayment of the loan, and unfortunately most small businesses do not have the assets to meet this requirement. Many entrepreneurs are forced to refinance their personal assets, such as their home, to settle the bank. This may sound scary, unless you’re really sure of your success.
It sounds like a daunting task, but it can be done with some preparation and determination. It’s not as easy as all the ads you’ve heard and if you start a “woman-owned” business it won’t cut any ice with a banker, but is it a lifetime gamble?
After all, that’s why you’re an entrepreneur instead of a corporate traitor. Go for the gold!