Tips To Get A Loan
 By Lee S. Shaffer

If you want to score a bank loan for your small business, the American Bankers Association (ABA) offers one big piece of advice: Have all of the necessary financial documentation in order.

In a 2005 informal survey of ABA member banks, nearly 74 percent of the bankers who responded said that financial documentation was the most important aspect in securing a small-business loan.

Unfortunately, 67 percent of the survey’s respondents said that applicants typically lack the documentation they need.

“It’s all in the details,” says James Ballentine, director for the ABA Center of Housing, Community and Economic Development. “Bankers are taking a risk lending money to a new business, so they want to see that the applicant has done the necessary homework and is ready for the challenges that lay ahead.”

So exactly what documentation do bankers want to see? That depends.

“Because each bank’s loan requirements vary, applicants should contact the bank directly and find out what paperwork they need,” Ballentine says. “Applicants will often drop off a stack of papers and hope for the best. They need to meet with the banker, sit down and encourage the banker to become an ally for success.”

Regardless of the specific paperwork a particular bank wants, there are still some general rules you should be aware of when preparing a loan request.

Follow these guidelines and you’ll go to the head of the line when applying for a loan. Here are the major tips bankers offered through the ABA survey:

Be prepared

• Provide accurate, up to date business and personal financial information. Make sure projections and assumptions are realistic and consistent, with plenty of details.

• Research and understand every aspect of your business and industry.

• Be prepared to substantiate why and how your business will be profitable. Although you might not know how to write a business plan, you should be able to fully describe your business, your competition, and how you can differentiate your business from others. Lenders want to know how you’re going to attract business and why customers will come to you.

• Provide solid financial background documents, such as tax returns. For smaller loan requests, ensure that the principal’s personal credit is in order. Smaller loans are primarily based on the credit rating of the principals. Review your credit reports from the three reporting agencies and correct errors before you apply for a loan.

• Be organized. Don’t throw a pile of papers on a lender’s desk. Use a binder with tabs to neatly present your loan request.

Know how much you need

• Don’t ask, “How much can I borrow?” Instead have a realistic projection showing how much you need, how the money will be spent and how you can pay it back.

• Borrow as little as possible to achieve your objectives.

• Explain on paper exactly how you will use the money. Will you invest in equipment? Develop a marketing campaign? Use the funds to hire new employees or relocate your small business?

• Provide documentation that shows how much of your own money you have invested in your business.

• Develop a realistic plan to pay back the loan. Your documentation should show that you fully understand your cash flow. It should also be clear that your projections for loan repayment are based on solid financial facts.

Have a backup plan

• Worse case scenarios and other considerations should be built into your plan.

• Show the lender how your business can survive and repay the loan even if the worst happens.

• Your plan should allow for some failures. Your documentation should show how your small business can succeed even with slow cash flow, fewer sales and other potential pitfalls.

Establish relationships

• Call your lender in advance. Ask what paperwork and documentation will be required. Set up an appointment to meet with the lender to discuss any questions that you have. Too many first-time borrowers fill out an application, drop it off with a teller and leave the lender in the dark.

• Don’t navigate the loan process alone. Consult with at counselor at SCORE, www.score.org. Look into seminars and workshops offered by the U.S. Small Business Administration, www.sba.gov.

• Talk to an accountant. Get help preparing financial statements for your business. An accountant can also help you realistically project cash flow, tax liabilities and other expenditures that will impact your small business.

(Posted May 2005)

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