No matter how creative a bootstrapper you are or how many investor “angels” your fledgling business may have, in time you’ll probably approach a bank for a loan or line of credit. Increase your chances of success by preparing the proper financial documents, managing your personal credit and developing a rapport with your local branch officers.
The most obvious part of the process is documenting your business’ financial performance and/or potential. Brian Evers, vice president of Chase Manhattan Bank’s Business Resource Center in New York City, suggests that businesses seeking venture capital prepare the following: a concise company description, its proposed audience, location and management team, an expense budget, and several years of revenue and expense projections. Businesses in operation for two or more years should prepare a balance sheet, income and cash-flow statements, as well as cost estimates, cash-flow projections, trade references and an outline of how they intend to repay a loan.
Be prepared to say exactly how much money or credit you need and what it will cover. “One of the worst things someone can do is say, `I need a loan,’ and when asked, `How much do you want?’ reply, `How much will you give me?’” says Evers, whose department helps small businesses acquire loans with Chase.
Loan officers will use the documents you’ve prepared to determine your capability to repay debt. Evers says some of the questions they will ask include: Are sales growing? If so, is the growth steady (20% a year is desirable) or too steep? Are margins above or below industry standards? And how much debt is the company carrying?
The process of getting a business loan can start years earlier with the management of your own personal credit. “A brand new company will have no historical financial, so a personal financial statement, including credit information and a balance sheet of assets and liabilities, will be a large factor,” says Evers.
Finally, Evers advises that when you open your business bank account, invite your local branch manager to see the operation. “If your business account executive knows your business end you handle them in a satisfactory manner, then two years down the line when you seek a loan, they can act as an advocate.”
For further details about the loan process, consult your bank’s department for small business assistance or contact the American Banker’s Association (800-338-0626).