You and your banker are getting along pretty well and then… you need something. You know the old saying – a friend in need is a friend indeed? Well here’s the first big test of the relationship. What steps should you anticipate when applying for a small business loan?
It’s your job to think about the problem and your banker’s job to listen to your challenge, understand the situation and give you a range of options. You don’t need a product – you need to fix a problem. It is really important to get this part right – otherwise you could be trying to fix a financial broken leg with a Band-Aid®.
Step Two: Just the facts – all the facts
Your financial story is mostly told by your tax return or financial statements. Larger businesses may have accountant-prepared financial statements. However, many businesses must rely on the information produced by QuickBooks or some other bookkeeping system and their tax return to tell their financial story. In general, assume that you’ll need to supply copies of your business and personal returns in order to paint a complete financial picture. And remember, if the taxman or accountant doesn’t see it – the banker doesn’t see it.
You will often be asked to complete a Personal Financial Statement. Think of it as a personal balance sheet – listing all your assets and liabilities. It is really a snapshot of your personal financial health.
Step Three: Substance is important, but make sure you complete the form
Most of the time a request for a loan, lease or line of credit has a form associated with it. Nobody likes to complete them – not even your banker. Look at it this way – when you and your banker can’t meet in person, the form tells your story – it’s like a business résumé. The more information you put on the form, the more complete a story you tell and the better your chances of success.
Step Four: Money: you want it; they have it – what’s the problem?
Lending is an essential part of what banks do – it’s a key part of how they make money. So it’s actually in a bank’s best interest to make loans. But it’s also in the bank’s (and customer’s) best interest to make sure lending is done responsibly and with the proper underwriting. There are many reasons why a bank might decline a loan request, such as having poor credit history. Keep two key things in mind as you work with your bank for a loan. Firstly, being organized and having good documentation significantly increases your chances of success. Secondly, a poor credit history can be repaired over time. Guess what it takes? Organization and documentation.
Are you a small business owner? What questions do you have that we should consider for future blog posts?
(Band-Aid is a registered trademark of Johnson & Johnson Corp.)