If you’ve tried to get a loan from the bank for your
business lately, you know it’s no slam-dunk.
The promos for SBA loans and loans for minority or women owned
businesses sounds great, but when you get nose-to-nose with a banker it’s
another story.
Some of the reasons that make it seem so difficult are that
many lending officers feel that they’re lending you their money instead of the
bank’s. They take almost personal
responsibility for maximizing repayment.
Another is that they are particularly suspect of new
ventures. Since 4 out of 5 or 80% fail within the first three years, many
lenders require a three-year history of doing business.
Lastly, with all the bank merging and acquisitions that have
taken place the decision-making process has been moved far off-site from the
local branch. Add all of these reasons
up, and you had better be prepared to razzle-dazzle the banker.
Here are some tips to make lending you more attractive to
the bank. First, start with a two-part
presentation. Initially submit a brief
overview of your loan request. In this
overview include:
- Excerpts from your business plan about your business concept, management team, and financial projections.
- Credit history overviews of the principals of your business.
- Brief answers to key lender questions of how much you’ll need, how you’ll use it, and how will you pay it back?
This should be a two to three page document and can be
considered a mutual qualifier. It
determines if the bank has any interest in lending you funds before you spin
your wheels for hours in front of the loan officer. You may want to end the
document with your phone number so that the banker can call you back for an
appointment or discussion.
If you’ve dazzled the loan officer sufficiently and have
obtained an appointment to meet with him, then it’s time to prepare the “big
guns”. The ammo you’ll come prepared
with will be three years of personal tax returns for all the principals of your
company and the existing business.
Include credit reports on all principals, a complete and impressive
business plan, and collateral and capitalization information.
This sounds like a lot of information and will require
immense effort, but that’s why business ownership isn’t for everyone.
In addition to being prepared with all that paperwork be
prepared for any off-the-wall questions the lender might throw at you. Take time to think about and originate a
30-second commercial about what you plan on doing and how it will benefit them
and the business.
Be prepared to explain away any credit blemishes that show
up on the credit reports before the banker has an opportunity to worry about
them. Be sure you’re able to show
“cash-flow” understanding and awareness, without which any business is
doomed. Plot your most realistic
estimated cash flow and bank account balance.
Make sure the bank balance never goes negative, and for a good touch
show the loan repayment as a separate line item. This shows the banker that you understand
priorities.
Collateral may be needed to satisfy the lender’s angst about
repayment of the loan, and unfortunately most small businesses have too few
assets to satisfy this need. Many
entrepreneurs are forced to pledge personal assets such as their home to allay
the bank. This may seem scary, and it
is, unless you’re really sure of your success.
It sounds like a daunting task, but with some preparation
and determination it can be done. It’s
not as easy as all the ads you’ve heard, and just the fact that you are
starting a “woman-owned” business won’t cut any ice with a banker, but all of
life is a gamble isn’t it?
Subscribe to email feed
