Very few businesses today are able to grow without some form of outside financing. And, while a few lucky entrepreneurs can tap into a rich uncle or angel investor, most business owners must seek financing from a bank or other lending institution. How can you maximize your odds of getting the financing you need? These five tips should help.
1. The right loan starts with the right relationship.
Before applying for a commercial loan, it’s a good idea to meet with a community lender to learn more from their experience. This can be a very informal meeting, over coffee or lunch. Ask questions. Does this lender understand your industry? Have they helped companies similar to yours? What can they bring to the table – besides money? A good lender will have a solid understanding of marketing, business management, accounting, and cash flow.
Remember, a loan is a relationship between two entities. So before you jump in, find out if you share the same values. Is there “good chemistry” between you? The best lenders are knowledgeable, enthusiastic and supportive. They’ll want you to succeed!
2. Talk to other businesses in your community.
Experience is a great teacher, especially if you can benefit from someone else’s. Are you friendly with other business owners who have successfully won and utilized financing to their companies? Give them a call and pick their brains. You’re more likely to get the inside story on who the best lenders are, and you can also get priceless advice gained from hard-won experience.
3. Assemble your documentation.
Lenders are very interested in fiscal responsibility. They’ll want to look at your books, check your credit report, and perhaps even meet with your business manager. Be prepared with accountant-prepared financial statements, tax returns, accounts receivable and accounts payable reports – the more organized and complete, the better. You should also provide details about your company’s cash flow.
You’ll have the best chance of getting financing if your company can show a profit for at least two years; that’s a good indication of sound management. You should also be prepared with a business plan that shows how your business has evolved and what your projections are for future growth.
4. Define your loan goals.
What do you need a business loan for? How will you use the money to grow your profits? Before you meet with a loan officer, develop a “pitch” for your company, highlighting your prospects. Explain how a loan will help both you and your lender enjoy more profits.
One of the most common mistakes made by loan applicants – particularly small business owners – is not being able to articulate exactly why their company needs money. Most small businesses have financial demands coming from all directions; rent, inventory, payroll, insurance, taxes – but it’s important to sort out the financing for all of your different obligations before you apply for your loan. (This goes back to your business plan.)
In addition to defining your financing goals, you should also be prepared to discuss how you’ll repay your loan. If you can prepare income projections showing a repayment schedule, you’ll make a favorable impression on your lender and improve your odds of getting the loan you want.
5. Think local.
National banks are great for big companies who need millions of dollars. But for smaller companies, it usually makes sense to think locally. Community banks not only understand the regional economy and markets, but they’re typically more responsive to small businesses, and more forgiving on collateral requirements. (Ask about SBA-guaranteed loans; most community banks offer these.)
Community banks may also be your best bet if you want personal attention from your lender. You’re much more likely to reach your lender on the phone at a smaller bank. That can mean a lot if your business has a temporary cash flow problem, or if an opportunity arises where you need to act quickly.
Finally, if your business is local, it really does make sense to work with a community bank. That’s because most community banks reinvest their profits locally, which helps build the local economy. More jobs equal more local folks with money to spend – which means more profit for your company.
Jim DuBois, Franklin Savings Bank senior vice president and senior loan officer, can be reached at 603-934-8337 or dubois@fsbnh.com. Franklin Savings Bank is online at www.fsbnh.com or on Facebook at Facebook.com/FranklinSavingsBank.
Current Issue - May 2024