Whether you’re a startup in the early stages of a business, a growing company looking to fund new initiatives, or your business needs capital to bridge a gap in cash flow. Some businesses might turn to an investor, but for most small business owners, it will likely be securing a small business loan.

What to Do Before You Apply for a Loan

1. Start with a business plan
2. Prepare financial statements
3. Clearly state the purpose and amount of the loan
4. Look into your personal credit history
5. Know your capacity for collateral
6. Understand what the loan will cost you in the end
7. Research your borrowing options

The key is to understand your bank wants, and how to properly approach them, can mean the difference between getting a loan for expansion or scrambling to find cash from other sources.

Each Banking Institution is Different
A bank will typically not make business loans to any size business unless a checking account or money market account is maintained at that institution. Ultimately your task is to find a business-oriented bank that will provide the financial assistance, expertise, and services your business requires now and is likely to require in the future.

Banks differ in the types of financing they make available, interest rates charged, willingness to accept risk, staff expertise, services offered, and in their attitude toward small business loans. Selection of a bank is essentially limited to your choices from the local community. Typically, banks outside of your area of business are not as anxious to make loans to your firm because of the higher costs of checking credit and of collecting the loan in the event of default.

Build Rapport
Bankers are essentially conservative lenders with an overriding concern for minimizing risk. Logic dictates that this is best accomplished by limiting loans to businesses they know and trust. One way to build rapport and establish trust is to take out small loans, repay them on schedule, and meet all requirements of the loan agreement in both letter and spirit. By doing so, you gain the banker’s trust and loyalty, and he or she will consider your business a valued customer and make it easier for you to obtain future financing.

Provide the Information Your Banker Needs to Lend You Money

A sound loan proposal should contain information:

  • Exactly how much money is required?
  • What is the specific purpose of the loan?
  • What is the exact source of repayment for the loan?
  • What evidence is available to substantiate the assumptions that the expected source of repayment is reliable?
  • What alternative source of repayment is available if management’s plans fail?
  • What business or personal assets, or both, are available to collateralize the loan?
  • What evidence is available to substantiate the competence and ability of the management team?

Gather your documents:

Depending on the lender, you’ll need to submit a combination of the following documents with your application:

  • Business and personal tax returns.
  • Business and personal bank statements.
  • Business financial statements.
  • Business legal documents (e.g., articles of incorporation, commercial lease, franchise agreement).

If you need assistance deciding which bank best suits your needs and provides the greatest value for your business operation, contact us today!

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