Now that the economy seems be coming out of its long protracted slump, you may be considering applying for a small business loan to help you over the hump of the slow months ahead. Or perhaps this is a good time to start thinking about expanding your business. Either way, you’ll increase your chances of getting a loan if you do some simple preparation before you go off to visit your friendly neighborhood banker.
1. Prepare a business plan – and the supporting documents
If you don’t have a business plan no self respecting banker is going give you the time of day so make sure you have one. It should detail your business operations for at least one year, but a five year outlook makes for a much stronger argument.
Cash flow projections are a vital part of your supporting documents, usually included as a sub-section of your business plan. They tell the bank what you expect to earn, how you’re going to spend their money and how you’re going to pay back their money. As you may have guessed, bankers especially like that last part.
Your previous years’ tax returns show how your business has been successful (making a profit), treading water (breaking even), or in the red (losing money). As you might suspect, the bank is not going to give you a loan if there is no indication that you actually know how to run a successful business.
Include in your documents bundle a list of your main personal assets, outstanding personal debt, and any other financial data you think may be useful. And while you’re at it, obtain a copy of your personal credit report. A solid credit report will enhance your odds of getting a loan because it shows the bank that you are responsible about managing your money. (You can get a free credit report through any of the three credit reporting agencies, TransUnion, Equifax, or Experian.)
2. Prepare yourself – for the interview
Your business plan can go a long way toward getting you the funding you want, but bankers will also judge your creditworthiness on how well you speak about your plans.
First thing you should do is to prepare a sound argument as to how the money will benefit your business. If, when meeting with your commercial banker, you say something like: “I just know this new product line is going to fly out the door that’s why I need more space so I can handle the extra inventory, and that’s why I need the money.” If you don’t get thrown out the door, you’ll certainly be asked to leave. But if you say something like: “I’ve done studies that indicate by adding this product line I will increase foot traffic in my store by 25%. That research also shows an increase of net profits of 10% per month. Let me show you the numbers.” Well now you might be asked if you would like something to drink – this will allow you the time to open your briefcase and pull out your business plan.
You should also practice responding to the following questions:
• How much money do you need?
• How do you plan on spending the money?
• Will you finance part of your plan with your own personal funds? If so, how much?
• How will you repay the loan?
• What collateral do you have to secure the loan?
• Do you have specific expertise in your business that makes you uniquely qualified to run your business? If not, who does within your business model?
• What will you do if you do not get the loan?
When you respond to these questions be polite, precise, and to the point. It will go a long way to showing lenders that you have good leadership skills and the ability to run a business through the good times and the bad.
Now go get those dollars!