It’s a well-documented fact that banks are less risk tolerant than in years past. As a result, the odds of obtaining a business loan have never been slimmer. But that’s not to say that banks aren’t lending to businesses, they’re just being more careful. With that said, there are steps entrepreneurs can take to help even out the odds. be spoke with Richard Zamojski, president and chief operating officer at First Independence Bank, to determine what small businesses should keep in mind before filling out loan application forms. He also suggests ways to maintain a relationship with the bank once the loan has been approved. Here’s what he recommends:
1. Have a business plan that provides the company’s background, its history, and most importantly, where it’s going in the future.
2. Provide budget and financial projections. An entrepreneur who’s borrowing money should detail what he or she is planning to do with those funds and how they’re going to help the business grow or thrive.
3. Check your personal credit score regularly. Banks often do. “Most lenders are going to look at your credit score because it tells a lot about the individual that you won’t see otherwise in a business set of financials,” says Zamojski. “If an individual has a bad credit score, it doesn’t matter how good the company financials are.”
4. Maintain up-to-date financial records prepared by a business accountant even if you use accounting software. “A lot of people use canned software systems, but [records] should be prepared by someone who’s financially astute, who can prepare a balance sheet, income statement, tax returns, and updated personal financial statements for the chief executives,” Zamojski says.
5. Plan for the possibility that you may have to personally guarantee the loan. If you’re applying at smaller banks, you and your chief executive should be willing to guarantee the loan.
6. Be prepared to provide personal collateral for the loan if asked.
7. Seek out information from the Small Business Administration to see if you qualify for a loan guarantee.
8. Start and maintain a relationship with the bank. “If a bank is going to make a loan, they want you to bring 8. your entire banking relationship to them—deposits, business accounts, even your personal account,” points out Zamojski. “If we’re going to make you a loan, we don’t want you depositing all your money with the credit union down the street and having a personal account somewhere else. It’s not for collateral, but we feel that if you’re going to borrow from us you should be doing business with us.”
9. Refer other businesses. Banks are always interested in receiving referrals. It’s not a bad thing to refer other businesses to your bank.
10. Don’t surprise your banker. Banks don’t like surprises. If there are things happening at the company—good or bad—be sure to communicate with the bank. Let them know how you’re doing—the things that are positive and negative. Make a concerted effort to meet with the bank regularly.