Now that the Small Business Jobs and Credit Act of 2010 has become law, entrepreneurs and small business owners may have better luck getting loans. However, it is still critical that small business owners lay the proper groundwork if they want luck on their side.
So, if a small business owner is looking for financing, where can they get information? A post on Business.gov by Caron Beesley titled, SBA Small Business Loans Explained–Availability, Eligibility and the Application Process, explains the nuts and bolts of small business loans.
A key consideration is how solid the bank is. Some banks that were heavily involved in the construction industry and residential home mortgages are not in as strong a capital position as they were a few years ago.
It is fairly easy to find information on the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC) and the Federal Reserve websites about banks, their financials and what other business owners think about them. Here is a list of some of the Best Banks for Entrepreneurs.
In a subsequent post by Caron Beesley on Business.gov titled, Five Tips for Finding Small Business Friendly Banks, small business owners will find several helpful tips for finding the right lender.
If you are hoping to get an SBA-backed loan you should look for a bank that is a Certified or Preferred Lender. This means they have a record of processing SBA-backed loans and are part of the Certified Lender (CLP) / Preferred Lender (PLP) programs.
Make sure you understand the lending process. You will be required to complete an application and submit information related to the viability of your business, its cash flow, and collateral. For SBA-backed loans, you can follow the SBA Loan Application checklist.
Generally, your chances of getting a small business loan are better with a small community bank. A small bank usually considers more qualitative information when processing a small business loan than a large bank.
It can be easier to build a close relationship with a banker in a small community bank than it is with a large bank. Turnover tends to be higher in larger banks. So, the banker who will be working with you and understands your business today could be gone tomorrow.
One very important consideration is the bank’s reputation as a small business lender. Find our how “small business friendly” the bank is. Ask how big a percentage of their loans are made to small businesses.
Before you start the loan application process, try to get some expert advice. You can get free advice from the Small Business Development Center (SBDC) on navigating the loan application and process. If you need help writing a business plan, contact SCORE for free mentoring and low-cost classes on how to write a business plan and a host of other small business topics
Another factor to consider when choosing a bank is what services they offer. Be sure to look at the bank’s services in view of what you might need in the future.
With proper preparation, you can dramatically increase your chances of getting a loan. After you have identified a short list of banks that you want to approach about a small business loan, here are ten tips to help you get prepared:
1. Find out as much as you can about your banker. For example, how long they have been with the bank and their credentials. Then, make sure you share details of your business with your banker including your operating cycle, risks, opportunities and cash flows.
2. Be willing to give a personal guarantee. Banks want to makes sure a business owner is willing to shoulder some of the risk.
3. Complete all necessary paperwork and submit it on time.
4. Know your personal and professional credit rating. If it is les than great, you better have a good explanation.
5. Make sure to explain how you intend to use the funds in your business. And, don’t ask for the maximum amount.
6. Be honest about the realties of your business. If it is a seasonal business or if there are other risks, be sure to explain how you intend to address them.
7. Be prepared to invest some equity or collateral. It demonstrates your willingness to share the risk.
8. Make sure you have a professional advisory team including attorneys, CPAs, bankers and insurance brokers/agents, etc. It assures the bank when you have access to expertise should you need it.
9. Be sure your business plan is compelling and includes best, probable and worst case scenarios.
10. Be prepared to demonstrate your ability to succeed as a result of your previous experience.
Posted by: Mike Clough