Small-business owners run short of cash for many reasons. Understanding how the loan process works is half the battle to getting money from a bank.
When applying for a business loan you must remember that banks require assurance of repayment. Most importantly, a banker seldom possesses sole authority to approve a loan. The banker must sell the idea to the bank’s loan committee and he or she has no desire to look like a fool presenting a poorly conceived loan.
In addition, banks are heavily regulated institutions. Government authorities closely review loans to assure compliance with bank lending policies.
To avoid complications, many loan officers deploy strict suitability standards. They refuse to evaluate any circumstances beyond the basic measurements. You cannot obtain loan consideration from them if you don’t fit their narrow criteria.
The Right Banker
Consequently, your strategy for getting a business loan is to first interview loan officers before they start assessing your qualifications. This doesn’t entail asking specific questions about lending philosophy. It actually means taking stock of general demeanor. A banker with plenty of self-confidence is most apt to evaluate your loan proposal with a broad view using a personal sense about business matters.
Confident bankers listen to narratives about how a small business operates. They develop an appreciation for the system an entrepreneur uses to prevail in the market. These loan officers rely upon their experience in knowing if a loan applicant is sound. You can explain to such people how you expect to generate earnings for loan repayment.
A good first impression is imperative. You must substantiate your business plan. Demonstrate how your past strategies succeeded. Provide financial reports and understand their meaning. You need a balance sheet as well as a profit and loss statement. Use them to support your oral history of the business and description about current conditions. Determine some key financial ratios that define trends. Present a projection of cash flow from following your plan that reveals funds for repaying the loan. Describe why the loan proceeds will make more money for your company.
Explain the reason you are short of cash.
A banker will know if the cause is poor management. However, healthy businesses can have sound explanations for needing loans. Equipment breaks down at the wrong time. A sales slump sometimes occurs. Expansion opportunities arise when insufficient capital exists.
Remedies are available, but they require more than cash infusions. Reversals of misfortunes demand guidance by organized managers. Show that you have the skills and discipline required to effectively operate the business.
Every banker deals with countless people seeking loans who don’t even know where to find a financial statement.
Other applicants have financial statements but not a clue about what they mean.
A customer in possession of well-understood financial statements and a plan for loan repayment is so rare that it commands a banker’s full attention.