Commercial bank lending is based on risk. The higher the risk your business poses to the lender, the harder it will be to borrow. The following tips are designed to help you present your best case to a commercial lender and increase your chances of getting the loan your business needs with competitive terms.
No. 1 - Evaluate Your Business
In commercial bank lending there are specific criteria by which the lender will evaluate your business and intangibles that may apply. Begin the process by viewing your business through the lender’s eyes. Get a loan application to see what the lender wants. Talk informally to lenders so know what is important to them.
For example, if yours is a small business, you know that half of such business fail within the first five years, according to the U.S. Small Business Administration. Where is your business in that time line? Know your business credit score. A score on the Dunn & Bradstreet scale of 75 or above is excellent. Is your business profitable? Are your customers paying on time? Do you have a good reputation in your community?
By evaluating your business through commercial bank lending criteria, you will be ready to answer questions the lender might ask.
No. 2 - Repair the Deficiencies That You Can
In the above examples, knowing what the lender will expect and knowing where your business might come up short creates the opportunity for you to repair deficiencies before you apply for a business loan.
If your business is not profitable, or that lack of profitability, can be explained by a regular seasonal event, you can clean up that problem before applying for a loan. Take the time to improve your receivables management before applying for a loan. If your credit score is not what you want, investigate to ensure there are no mistakes that are artificially lowering your score.
No. 3 - Develop a Concise Business Plan
A business loan, as opposed to a line of credit, typically is for a particular purpose. Develop a complete but concise plan that clearly illustrates where your business is now in terms of your strategy, goals and tactics and how this loan fits in that plan. Detail the expected uses of the loan proceeds, what the borrowed dollars are to accomplish and how you will be able to pay the loan back.
Professional-looking loan documents, such as the application and your business plan, can make a difference. Be professional is every aspect of your presentation, from your business plan to your wardrobe.
No. 4 - Proactively Seek a Lender
When you have done all you can to be ready to meet a lender, chose the lender carefully. If you have established relationships with a commercial lending institution, start there. If not, investigate local lenders to find those who understand businesses that are the size of your firm and are in your industry. Commercial bank lending is competitive, and different lenders have different strengths. Match the lender’s desires and capabilities to your specific needs and situation.