Most of what I’ve learned about bank loans for businesses came from early mistakes. Waiting too long to start the process is a good example of those mistakes. Failing to understand what banks want is another. And by “what banks want” I don’t just mean what they want to know about your business; I also mean what kinds of loans — and what size loans — they want to make.
Banks aren’t all the same. The advertisements may say, “We love small businesses,” but small at Bank of America is different than a small business at a local community bank. You need to make a few calls or visits to find the right fit.
First, get clear about how much money you want. The rule is, “Don’t ask for exactly what you’re sure you need right now; ask for more.” Build in a margin for change. Anticipate worst and best case scenarios, and go with the worst, especially a “recession worst case.” The last thing a banker wants to do is set you up to fail, because if you can’t repay the loan, they fail too.
Then make your first fact-finding call to your current bank, the one that handles your deposit account business and all the other services you use, such as payroll, wires, debit, and credit cards. If you need a $50,000 commercial loan to finance equipment purchases right now and your bank isn’t making those types of loans, you need to know that. If your bank is only making secured commercial loans, you need to know what security they want.
Additional calls to other banks in your area will tell you a lot. Although you might think that no bank will lend to you if you aren’t a customer, that’s not true. Banks — especially independent banks — are looking for new business customers. They want your deposits, they want to provide you with the services you need, and they want to make loans. They want your personal account relationship, too. Maybe you’re exactly their target market.
After you have a few possible banks, put your own loan package together:
- A well-written loan request statement: amount, use of the funds, length of loan
- What your business does and your target markets
- How long you’ve been in business and a brief profile of your experience
- Current financial statements for the business and for you
- Tax returns for at least two years, for the business and you
- Documentation of your business’s legal entity — corporation, LLC, etc.
When you have your appointment with a loan officer, you’ll likely be asked about many of the items in your loan package. The package is the “leave behind.” The conversation is how you and the lender assess each other. Between the loan package and the exchange with the loan officer, the conversation is the most important.
So be ready to talk — and be honest. Whether you’re trying to expand or smooth out your cash flow because your clients are paying more slowly, say it. There are a lot of factors in getting your loan approved, and straight dealing is number one.