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Get ready for the banker: a 5-step loan prep
By Jay MacDonald Bankrate.com

Get ready for the bankerRemember all those steps you never quite got around to in the rush to open your door to customers, things like a business plan, income projections, market analysis and a personal financial statement?

You're going to need them -- and more -- when the time comes to apply for a business loan.

But you can increase your chances of obtaining that loan if you begin to lay the groundwork now, before you need the money.

"Prepared loan applicants lend a lot of credibility to what they're doing," says Lisa Oliver, Northeast regional sales manager for KeyBank. "An unprepared loan applicant immediately places into question in the lender's mind whether this is really a feasible plan and whether the lender can pull it off."

What the lender wants
A business lender will typically weigh four key factors when considering a loan request:

  • Your previous business experience or track record;
  • Your ability to repay the loan;
  • Your collateral and personal guarantee; and
  • Your character.

The lender may grant all or part of your loan request, or incorporate a Small Business Administration loan to guarantee part of the amount. In fiscal 1999, the SBA guaranteed 43,639 general business loans totaling $10.2 billion.

Your success in landing the loan will depend on your ability to clearly present your business need for a specific loan amount, convince the lender that you and your business can and will repay the loan, and earn their confidence and trust.

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If you've never given any thought to how you would accomplish these things, the time to start is now, not when your back is against the wall. Going in unprepared will not only convey the wrong messages, it could prove costly, even fatal, to your business.

"That first meeting begins to really frame how that lender is going to view the application as a whole," says Oliver. "If someone goes into a banker without doing their homework and ends up going back home to create a plan from scratch, they can add months to the process."

Step 1: Prepare your documents
When committing your business to paper, your first step may be the most important one: Get help.

Two excellent free advocacy resources are your local Small Business Development Center, administered by the SBA, and your local chapter of the nonprofit Service Corps of Retired Executives. The SBDC has the resources, SCORE the experience in the trenches. You can benefit from both.

They can help you build the following documents:

  • Business plan
  • Balance sheet, broken down by month
  • Income statement
  • Cash flow statement
  • Personal financial statement
  • Tax returns for the past three years
  • Interim financial statement
  • Detailed description of loan: amount, term, how it will be used, secured and repaid.

They also can help you pull a credit report, determine what steps you need to take to eliminate credit flags, and steer you toward a bank that is likely to help you when the time comes.

"Some lenders are very good at SBA loans, some don't do them at all. Some are good at startup loans, some don't do them at all," says Suzanne Specht, a certified business analyst with the SBDC at Florida Gulf Coast University. "The SBDC is in constant contact with lenders in your area. They know who is offering what. They'll save you time finding the right lender and can also help with alternative financing such as venture capital, angels and purchase order financing."

Once you've got your complete package together, run it by a SCORE counselor, ideally someone familiar with your industry who can put that final polish to it.

Step 2: Meet your banker
If you haven't already done so, make time to meet your banker, loan officer, teller, even the guard at the door. Get to know them as people. Let them get comfortable with you and how you conduct your business.

"Taking the trouble to get to know the bank personnel can be a very, very useful thing," says Raymond Phillips, chairman of the SCORE office in New York City. "One of the important ingredients in determining whether a loan should be made is called character. By getting to know the individual, if there is a little bit of warmth between the prospective lender and the prospective borrower, it helps. It takes work and it takes a little preplanning, but it's a matter of very great importance."

KeyBank's Lisa Oliver agrees.

"The financial services world is getting more competitive all the time. Somebody who has been in business two or three years, who has a checking account, should take advantage of at least that relationship. If we have a checking account client, we need to keep track of that client. The last thing we want to have happen is for that person to decide to get a loan somewhere else."

Specht even suggests going a step further.

"Invite them in to your business," she advises. "They will call on you after the loan, of course, but sometimes it's nice to have them call on you before the loan so you can develop that good communication so if the need arises, you will know who your lenders are and what they do."

Step 3: Prime the pump
Feeling better about your banker? Good. Here's where you can help them feel even better about you. Place all your personal and commercial accounts with them. Let them benefit from your business and see firsthand how you manage your money.

"It's also good to go in and get funding when you don't need it," says Specht. "It's a good idea to establish a line of credit if you know down the road that you're going to be looking for funds. Place your commercial accounts with them. Plant seeds in that business banker's head that you're going to be looking for funding down the road. Then when you go in for a loan, they have that foundation and the banker will feel a little more comfortable."

It's also a good opportunity to check out the bank's loan procedures and forms ahead of time, in case you need to work on credit repair.

Step 4: Assemble your loan team
Papers in order? Credit in line? Filled out the loan application and given your SBA and SCORE advocates a look? Good.

But when the big day comes, don't walk into that conference room alone. Your SCORE counselor, SBDC coach or both will not only be invaluable to you in negotiating the loan, their presence can make your banker more comfortable, too.

"It's very intimidating," Oliver admits. "If you own a flower shop and your daily challenge is to balance your checkbook, to go in with a $50,000 loan request and begin a negotiation is daunting. Having someone sitting by your side to answer questions or translate some of the bank lingo is a very huge ally."

Phillips agrees.

"A large majority of our 40 SCORE counselors have lived that experience," he says. "They've been around the track, and having been around it, while they can't guarantee that a new business owner will get a loan, they know the ropes and can help the individual understand what the process is like."

Step 5: When the answer is no
It's no shame to strike out your first time at bat. With any luck, you'll come away from the experience knowing exactly what you have to do to be successful next time.

Here's where your teamwork really pays off. Your SBDC and SCORE advocates, even your bank loan officer, can help you scale back, make repairs or approach the challenge from a different angle until you've got a winner.

Phillips sees it this way:

"In the final analysis, the lender is anxious to make the loan because that's how they make their living, but he's always worried, 'Am I going to get paid?' To obtain a loan, you need good ingredients and you need to sell yourself."

And start early.

Jay MacDonald is a contributing editor based in Florida

-- Posted: Jan. 26, 2001


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