Getting banks to say 'yes'
C. McCune Bankrate.com
Bankers fearful of bad times
this year and burned by bad loans last year are instituting more
stringent loan requirements -- even though the Federal Reserve has
cut interest rates several times.
"It's a good news/bad news
situation," says Mike Kiser, president of Wisconsin Bank in Milwaukee.
"Although the interest rate cuts are positive, the other side of
the coin is that a number of banks are tightening up on credit after
writing off huge losses last year."
The losses have made banks
more wary of lending to highly leveraged or struggling companies.
Banks that had big write-offs last year must set aside more money
this year to cover bad debt. In short, they have less to loan and
have to be more careful about who they loan to.
Finally, the troubles of
many blue-chip firms such as Xerox, Owens Corning and Lucent Technologies
have given other businesses the loan equivalent of a black eye.
Banks are casting a critical eye toward all commercial loans because
of the problems they've had with companies that ordinarily aren't
big credit risks.
But while bankers have gotten
more shy about lending, that shouldn't stop a small business that
needs capital from trying to get a bank loan. Here are tips on how
to bag a loan during today's credit crunch times.
craft a business plan. "People will say, 'I know to do that,'
but it's surprising how many small business owners fail to do a
good job," says David Amick, executive director of Premier Capital
Corp., an Indianapolis-based small-business lender. To get a loan
from reluctant lenders, you have to woo them. Give them hard numbers
about your company's financial performance, and give realistic projections
about future performance. Make a persuasive case why your company
needs the money and why it makes sense for the lender to lend your
company money. "In other words, demonstrate why you are credit-worthy
and how you will pay back the bank," Amick says.
a bank with business sense. Kiser recommends looking for
loans from banks that specialize in business lending. "Not every
bank understands small business. Many focus on retail and consumer
lending," Kiser says. "You have to find a lender that understands
business in general and that specifically understands your small
seek a loan from your personal banker. Particularly if your
company is new and doesn't have much of a track record, it can make
sense to talk to your personal banker about a business loan. Your
banker may not know your field, but if he or she knows you, that
can go a long way in persuading the institution in lending your
business capital. "Go to where you currently bank because they know
you and your history," Amick recommends. "If they've lent to you
in the past, they will be more likely to lend to you in the future."
overlook the SBA. The Small Business Administration's guaranteed
loan programs are generally easier to obtain than if your company
applied independently to a lender.
for the right loan. Before you approach a lender for money,
make sure you're choosing the right financing tool to do the task.
For example, cash-strapped small businesses will use a line of credit
to finance any and every purchase instead of using it for its true
purpose: cash to get over the peaks and valleys of business. "I've
seen companies finance $50,000 or $100,000 worth of equipment using
their credit line, and then at the end of the year they were unable
to pay it off," Kiser says. "That's not what a credit line is designed
your credit reports clean. That goes not only for your business
accounts, but also your personal checking accounts. Routinely examine
your credit reports for mistakes. "This often gets overlooked, but
it's very important for small businesses where the owner very often
is the business. You have to have a clean record if you expect to
get a business loan," Amick says.
for a partner, not a loan. Small businesses can get trapped
into accepting a loan from any lender. Unless the situation is dire,
your company will be better off taking the time to find a lender
that will work as partner, rather than a financial institution that
will be apt to cut its losses (i.e., call your loan) at the first
sign of trouble, Kiser says.
While getting a loan today
can be tough, taking these steps should make the road a little less
rocky and improve the odds that your company will get the financing
that it needs.
Jenny C. McCune
is a contributing editor based in Montana