Applying for a business loan
With the economy improving and businesses ready to invest again, many entrepreneurs are ready to begin borrowing again. Bankers are ready to help businesses make the right decisions as they reenter the loan market.
Just like you, bankers are responsible for ensuring that our business, the bank, makes sound business decisions. There’s nothing we want more than for your business to be successful. When you do well, we do well. It’s a classic win-win.
Knowing that the bank is on your side should take away some of the angst, but here are a few more pointers that should help demystify the process and get you on track for a smooth loan application process.
Don’t Wait Until the Last Minute to Talk to Your Banker
There’s no one more familiar with the loan process than your banker. Get your banker involved early on in the process, even if you’re only in the planning stage. Your banker’s expertise is a resource to you for guidance and information to help you prepare. You’ll be able to go into the process with confidence.
Have a Business Plan and be Able to Communicate It
A business plan explains what your business does, how you operate it, what the business has accomplished and future goals. It includes an overview of finances and how resources are managed. The business plan demonstrates to the banker that you are taking a thoughtful approach to your business.
Understand your Personal Credit Score
Until you’ve built up a credit history for your business, the bank will look at your personal credit as a predictor of how you will handle your business’s finances. Know your personal credit score and be prepared to answer questions about it.
Be Prepared to Explain Any Past Financial Challenges
Like your personal credit, the way you have handled financial challenges in the past is a predictor of how you will handle them in the future. Remember, the banker is looking for a win-win. If the bank is going to lend money, it needs some assurance that it will be repaid.
Be Able to Articulate Why You Need Money and How it will be Used
You must be able to clearly explain what you want to accomplish with the loan. Demonstrating that you have a specific purpose, goal and plan for the money will help build the bank’s confidence in you.
Explain How You Will Fund the Down Payment
A down payment will almost certainly be required. Your ability to produce an adequate down payment shows the bank that your finances are sound, that you’re not borrowing above your means and that you’re willing to assume some of the risk.
Bring Your Up-To-Date Financial Information with You to the Bank
You can help move things along by being prepared with your most current information when you go to the bank. If you’re uncertain about what you need, contact the bank ahead of time and ask.
Help Gather Additional Information
There are some instances, especially when there are multiple partners involved in the business, when the bank will require additional information. You can help move things along by helping coordinate the collection of the information.
Allow the Banker to Speak with Your Accountant
Bankers and Accountants speak the same financial language. It may help the process move along more smoothly if you allow your banker and your accountant to speak with each other directly. They will make you aware of any information that passes between them.
There Is Still Work to be done after the Loan is Approved
Once the loan is approved, due diligence begins and work continues. Depending on the type of business and how the loan will be used, due diligence may include an appraisal, environmental work, verification of good standing with the State, gathering articles of incorporation, etc. All of it takes time. Have patience.
A Strong Relationship with Your Banker can be a Big Help
During the due diligence phase, questions or hurdles may come up. Having a solid relationship with your banker can help. Stay in touch. Respond to questions quickly. Provide information when needed.
Understand All the Terms and Conditions
Loans must be paid back. The bank will provide you with specific terms and conditions that spell out how you should make payments, the frequency they must be made, and by when the payments and the entire loan amount must be repaid. It’s possible that you may also be given a commitment letter. It’s your responsibility to know and understand all the terms and conditions and then work to meet the expectations.