Five Tips for Securing a Business Loan

When a business owner has access to financing, opportunities will come your way. Here are five things you can do to help prepare for your meeting with a banker and secure the resources you need to grow.

1. Ask for recommendations for a local banker.

If you have a relationship with someone at your bank, they can introduce you to a lender, set an appointment and ask what specific information you should bring to the meeting. If it's a first meeting, invite the banker to your place of business. Seeing your business in person will quickly give the banker a sense of familiarity with you and your business, particularly in relation to how the loan will be used.

2. Be able to discuss your business.

Be prepared to discuss your business, including your background, major suppliers, your customers and new trends in your industry. Showing your written business or marketing plan to a lender lets them know you have a road map to help the company stay on track to achieve its goals. Companies that create written business or marketing plans tend to be more successful. Also, you'll want to share your personal goals for the business.

3. Be specific about your capital and capacity.

Think through the specific loan amount that you'll be asking for and the purpose for the funds. It's critical for you to be able to explain to your banking partner what the sources of repayment will be and how long you will need the loan. Be prepared to have two years of updated personal and business tax returns and a personal financial statement available. Also, be ready to explain anything unusual that may be in your credit report.

4. Think about your collateral.

The bank may ask for collateral, so be prepared to discuss assets that can be pledged against the loan. Examples include business assets or publicly traded stocks and bonds.

5. Maintain accurate financial records.

Banks are cash flow lenders, so it's important for a business to maintain accurate books. A company's financial statements will be used to determine its ability to repay all debt obligations, including the loans for which the company is applying.

The Five Cs of Credit

  • Character - Banks want to know your background and your business experience.
  • Conditions - How strong is your business? What's happening with the local economy?
  • Capital - How well capitalized are you? How much of your own money is invested in your business?
  • Capacity - Banks want to know that your business has the capacity to repay your loan.
  • Collateral - With secured loans, you pledge something you or the business owns as collateral.

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