A Banker's Tips for Getting Business Loans

No matter what business you are in, there are times when borrowing money makes financial sense and often times, extra capital is needed to allow your company to grow. Trying to finance growth internally can often present challenges for many businesses, especially when upfront investments are required and if proper capital structure and working capital support are not in place.

“Bankers regularly provide financing for all kinds of business purposes including working capital, real estate, equipment and acquisitions, to name a few” says Matt Marchbanks, a senior vice president and group manager with Comerica’s Business Bank. “Seasoned business owners realize that as changes in their businesses occur, their financing needs may change as well.”

Applying for a business loan can seem a bit cumbersome if you are not familiar with the process. But if you follow a few simple steps you can ensure the process goes smoothly. Marchbanks offers the following advice for business owners seeking a partnership from a commercial bank:

Start Early. Don’t procrastinate when it comes to your business finances. Start the process early in anticipation of potential needs for adjustments. A solid banking relationship begins with getting to know the ‘soft side’ of things. Relationships built upon mutual trust and commitment tend to be longer lasting and more fruitful than a quick, transactional approach.

Get to know your banker. Commercial banking officers are in business to help your business succeed. Part of their desire is to understand your business and to work with you to help build it, improve cash flow and avoid ‘roadblocks’ that business owners face daily. To find a commercial banking officer that best fits your needs, ask fellow business owners for recommendations. Interview several commercial banking officers until you find one who will work hard to understand your business and is motivated to help you succeed. It is essential you find a banker you trust since you are investing substantial amounts of time into building a long- term partnership.

Provide a detailed business plan. The first step in the loan process is to provide your banker with a comprehensive overview, or business plan, of your company. This plan is critical to the banker’s understanding of you and your business. It should include a description of your product or service offerings, names and background of key management, a market/competition overview and an outlook for the industry/market.

“Your business plan should be a carefully thought-out document,” says Marchbanks. “It lets you set out your vision and outline a strategy to make it happen. With your main goals and other objectives defined, it is much easier to set targets, timetables and budgets. When a banker sees this, it’s easy for them to see the direction your business is heading in and that you have a clear plan for success.”

Make sure your business plan doesn’t just factor in the positives but addresses any challenges your business might face and how you plan to address them. Without full transparency, it becomes tough to see the whole picture, which is needed to perform a thorough credit analysis and tailor a capital structure to fit your needs.

Provide company financial information. Financial statements are oftentimes referred to as “banker’s blueprints.” They provide the lender with a clear view of the company’s past, present and future. Financial statements should include a balance sheet, income statement and any footnotes necessary to provide the reader with a clear understanding of the company’s financial condition. Businesses should be prepared to provide three to five year-end financial statements along with the most recent interim statement. A forecast of how your company will be affected financially if you are considering expansion is important as well.

Don’t be turned off by the banker that may ask for more information than others. In fact, this is the banker you should put at the top of your list and get to know better. Inquisitive bankers knowthevalueofdiggingindeepandmakingsuretheyunderstandthecompletepicture. If they understand your business well, they can also get into the trenches with you to help you solve problems and be a referral source for you.

Provide personal financial information. “Because personal finances of business owners and their company are so closely related, it is often important for the lender to review the business owner’s personal financial information,” says Marchbanks. “This can be accomplished by providing a personal financial statement, which usually consists of a balance sheet detailing assets (property values, securities held, etc.), liabilities, a breakdown of total personal income (salary, investments, etc.) and details of any minority or majority ownership in Joint Ventures, LP’s, LLC’s, etc. Your banker needs to see the full picture of your finances.”

You also may be asked to provide personal income tax returns. Many bankers will look at the character of the business owner including the applicant’s honesty, integrity and trustworthiness. Good personal credit must also be emphasized, with a preferred credit score over 700. Order a credit report before applying for a loan to make sure there are no mistakes or misrepresentations that need to be corrected. Commercial banks see personal credit as a strong reflection of how the finances of the business are handled.

Explain how the loan proceeds will be used. It is useful to have a detailed explanation of the purpose of the loan. If borrowing funds to purchase machinery or equipment, show a contract outlining the purchase and delivery price. If applying for real estate construction funds, pertinent details from the architect, contractor and/or construction manager will be required.

Every business is different and the needs of different banks may vary. However, by taking the steps outlined above you can ensure a smoother loan process and help determine the best mutual fit for a long-term partner.