How to Get the Business Loan You Want
What you need to know about financing before applying
By Steve Bloom, SCORE Counselor and SCORE
November 9, 2011
Although times are tough, small business financing is still available.
Banks are collateral lenders and require guarantees from borrowers with a strong credit score who pledge verifiable assets to secure a loan.
Getting the loan you’re looking for is possible if you’re informed. Use these quick tips to start you on your way to the perfect loan package.
- Form a relationship You need to identify a local community bank in your area and open an account relationship with them. They are typically small financial institutions whose market area is confined to neighborhoods or smaller cities. Most important, lending decisions are made by senior executives who understand the needs of their community, and have a personal relationship with their customers. Community bankers provide loans to people they know and trust.
- Get your Ph.D., aka Passion. Heart. Determination. Write a short but compelling cover letter that details your loan request, your ability to repay and what makes you “special.” Truth be known, we are all guilty of drawing conclusions based on first impressions. Don’t waste the opportunity by not making a passionate explanation on why the banker needs to consider your loan.
- Prepare your plan A business plan with a concise executive summary explains in a few pages your experience and knowledge in the field, your competition, your competitive advantage and who supports your business. A client list and testimonials from those you do business with are important to validate your business plan.
- Submit financial documents You will be required to submit the past two year’s tax returns for your business, yourself and your significant other. A year-to-date balance sheet and income statement also will be required plus a detailed budget for at least 24 months supporting how you will be able to repay the loan. Consider providing recent appraisals and/or an annual inventory report as well as a list of your accounts receivables that can support real estate and asset valuations.
- Be clear on terms. Then pay. It is important that you show the lender you understand their underwriting requirements and that you are a qualified borrower. Plan for how the loan will be repaid if the business fails. Seeking money for your business is not a quick and easy process. It is critical to understand lender requirements and provide current and accurate information about you and your business.