Get ready for the banker: a 5-step loan prep
By Jay MacDonald
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
"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
- Your ability to repay the loan;
- Your collateral and personal guarantee;
- 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.
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
"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
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
"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
"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
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
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
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."
"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
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