Feb 6 2012
If you are an electrician or a plumber, the tools of your trade are obvious. The basic tools and techniques used by bankers to assess a loan request for a business are relatively simple but a little more difficult to decipher. Larger companies have full time business managers who know what to provide and they are paid to anticipate a bankers needs. Small business owners tend to borrow less frequently and have fewer opportunities to learn what to expect. They have more anxiety about approaching a bank.
Here’s some helpful tips on how to wow a banker when you need to borrow money for your business.
Three Early Tips:
- If you have been in business less than three years or have lost money you may need more capital, not a bank loan. Commercial banks do not provide equity. On the positive side, many banks have access to programs designed to provide government support in the form of guarantees through the Small Business Administration or the United States Department of Agriculture that are specifically designed to support small business owners.
- The package of financial information banks need will include both personal and business financial information. Pull your personal credit score. When you own a private for profit or small not for profit business, bankers look at your personal fiscal health in addition to the business’s financial track record.
- Your time is valuable. You’ll feel more confident and make the best use of your time and energy if you gather a package of information before you request a loan.
What Financial Information Does a Banker Need for a Business Loan?
- Personal financial statement on a bank form signed by you: This is a summary of what you own and who you owe. Branches have these forms.
- Three years of personal & business tax returns
- One page elevator speech: Describes your company; the work you do: why you want to borrow
- An understanding of your cash creation cycle: What do you do to generate income and cover expenses? If you create receivables, they want to know how many days it takes to collect them (a receivables aging) and what your bad debt experience?
- An estimated cost of what you are purchasing if it is a fixed asset: Examples of a “fixed asset” are equipment, real estate, technology or vehicles.
Take time to prepare and tap into no cost or low cost assistance to put your package together in a thoughtful way. Gathering and creating the information before you approach a banker to submit a loan request can make some small to medium size owner/operators feel more confident. It will also help you assess how you will produce the cash to repay the loan.
What No or Low Cost Resources Can You Contact to Help You?
- Small Business Administration
- SCORE – a network of 13,000+ volunteers who offer small business entrepreneurs confidential business counseling at no cost
- Local Chambers of Commerce
- Business programs through national or regional associations you belong to
- Micro lending through not-for-profits
Do you know of other federal, state or regional organizations that are share reliable resources for small business owners at no or low cost?
The majority of small business owners do not prepare a package. A comprehensive and thoughtful package allows bankers to work with you in an efficient and informed manner. You are demonstrating strong business skills by compiling the information. A good package does not guaranty approval of your request. Banks are highly regulated to ensure safety and soundness and they have credit underwriting processes and methods that they will work through for any loan request. What a well developed package does is demonstrate a thoughtful approach to borrowing. Bankers are paid to assess business owners skills in addition to what the financial numbers represent about the operations.
What questions do you have about applying for a business loan?