The key to getting a small business loan is preparation. You will need to put together documents that will help persuade the lender that your small business loan is necessary and that you are a good risk. Developing your business plan is the single most important step you can take toward your success, and is the key document used to present your funding request to lenders.
Several different facets should be included in a well-organized business plan. While the length and format of business plans will vary, the basic components will be similar. Not only must the plan be well written, but it should also be organized in a logical manner using compelling phrasing that generates confidence in your business enterprise. Therefore, the wording should appeal to the target audience while it outlines the specific details related to the potential strengths and weaknesses, potential for competition, prospective financing, and expected performance.
Once you have completed and proof-read your business plan, decide which banks you want to approach, and what type of commercial loan you will pursue. You may wish to ask others in your industry for referrals to small business friendly banks in your area. You can also narrow your choices by doing some research on the internet. For example, Entrepreneur.com often ranks the best banks for small business and the type of loans they offer.
Make a list of three banks to contact, and then call the commercial lending department to find out if the bank is looking for loans compatible with your needs. This is a key step since all banks will try to balance their loan portfolio, and may not have an interest in your industry or business type. If you get a positive response, ask for a loan application. Prepare all the requested documents and include a copy of your business plan with your application. Be sure to keep copies of each application at your place of business.
Call the bank again to make an appointment with a commercial loan officer. Be sure to rehearse your presentation ahead of time, so that you can confidently deliver it within a 30-minute time limit. You should be able to defend your financial projections, but also be able to answer negative questions in a realistic manner. For example, consider how you would you answer these questions: What will you do if you do not get the loan? What will you do if your cash flow is much lower than projected?
When meeting with your loan officer, be sure to dress for success (a dark blue suit and crisp white shirt always works). At the end of the meeting, be sure to thank your loan officer and invite him/her to visit your place of business for a follow up meeting.
Be aware that the bank will review your loan request by focusing on the five ‘C’s:
*Capacity – Your ability to repay.
*Character – Your talents, fortitude and ability to successfully meet business challenges.
*Capital – The money you and your investors can bring to the table.
*Collateral – Assets you and your business possess to secure the debt.
*Conditions – Are you operating in a market that is poised for success?
Follow up with your loan officer within a week to ten days.
If your loan request is declined, ask if it is possible to make the loan under the Small Business Administration’s (SBA) Loan Guarantee Plan. If the bank is willing to pursue this route, the loan officer should be able to contact the SBA for discussion of your application.
If your request is accepted, you should review the loan agreement details with your accountant and attorney prior to signing any paperwork. You may wish to use your accountant as your negotiator with the bank. At the loan closing, you will be asked to sign personal and commercial guarantees, promissory notes and disbursement requests.
If you have requested a term loan, you will receive the entire loan amount at once. If you requested a credit line, you will receive the amount needed for current operations, with the ability to draw on the remainder in the future (this saves you interest in the long run).