The Banker's View:
Applying for a Business Loan
By Donna Kain, President, The Buckhead Community Bank
Applying for a business loan can be an intimidating process, but if you’re prepared, you have a much greater chance of success.
Here’s a rundown of what bankers are looking for from you when you’re applying for a business loan.
First Impressions
First, show your passion and belief in your business. Otherwise, how can you expect the banker to believe in you? In this situation, you are a salesperson – you’re selling yourself and your business. Treat the meeting the same way as you would any other sales presentation: be prepared, professional, friendly and courteous at all times.
And be patient. The banker will ask you lots of questions, but this helps them understand you and your business.
The Loan Amount
You’ll need documentation to show how you came up with the amount of the loan you are requesting.
- If the loan is for an equipment purchase, you’ll need the invoice or quote for the equipment being purchased.
- If it’s for leasehold improvements, have an itemized list of all costs associated with the build-out.
- For a line of credit, give details of specifically what it will be used for and how and when you will be able to repay the loan.
Provide Documentation and History
- If you are starting a business, you’ll need a complete, well-thought-out business plan with realistic projections for a five-year period.
- If you are an existing business owner, you’ll need to provide three years’ business financial statements, including A/R, A/P and inventory reports, if applicable. Provide interim statements for a partial year.
- You’ll also need to show a current personal financial statement and three years’ personal tax returns. Even if you have been employed elsewhere, you need to show your ability to generate income to repay the loan.
- Finally, you need a proven track record. If you’re starting a new business, your previous work experience is very important. Be sure to show how you can transfer those skills learned on a previous job to successfully running your own business. If you have an existing business, the banker will expect to see profits - not losses - from your business. If you have losses or minimal profits, be prepared to explain - and “My accountant tells me not to show a profit” is not an acceptable reason. The banker will also be looking for sufficient cash flow to service the loan.
Can You Pay It Back?
- Your personal financial situation needs to be strong. Are you prepared personally to cut back on spending in order to provide cash to run the business? The banker expects to be paid before you pay yourself.
- If your debt situation requires that you need a significant non-reducible salary from the business in order to meet your personal obligations, you’ll need to find a way to reduce your debt before applying for the business loan.
- Be prepared to personally guaranty the loan. You’ll need to offer collateral, even if it has to be your personal assets. You may be asked to provide an additional guarantor if your request has some weaknesses.
Have a back up plan. The banker would prefer that you have already thought through the worst case scenario.
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