So you've thought about taking out a small business loan to help fund your business. I want to give you a few pointers about the loan process. Speaking from someone who used to work in the banking industry for over a decade, here’s what you will need to know about applying for a loan. You have to be upfront and honest with your banker. Painting a complete picture of your current economic status, and future business goals, will help your lender help you.
Be upfront and as honest as possible so that there are no surprises. Interview more than one lender prior to accepting a loan from the bank. You want to ensure that the banker of your choice will work in your best interest. Don’t just apply for a loan at a bank just because of the low fees and an interest rate. You want to work with a team of individuals who understands your current situation and your business goals. Building a strong relationship with your banker is a valuable asset to you.
I strongly suggest that you do the following:
Make an appointment to meet with at least 3 bankers
Be upfront and honest about your credit, finances, employment and assets. Lack of information slows down the process and can essentially leave you and the lender frustrated.
Have a strong business plan in place one that articulates business growth, cash flow and sustainability.
Assets & Reserves
It is imperative that you have sufficient enough reserves and assets to be able to liquidate your funds and pull money from collateral such as properties and investment accounts.
Be sure that your credit is in tact prior to applying for a loan as this information will be used to determine credit worthiness.
Bring all upfront documentation
Ask if any documentation is needed for the appointment and make sure that you BRING EVERYTHING. This will help streamline the process and you will get a decision sooner on your loan. Piece mailed information only delays the process. In addition to that, your documentation helps your banker to tell your “story”. Whenever you have “missing pieces” in the “story”, it’s hard to articulate the information clearly to the people that matters the most in the process, the Underwriters or Small Business Analysts. The underwriters will review all of your documentation, refer to the guidelines and regulations to ensure you’re eligible for a loan. The underwriter will make the final decision in whether or not you qualify for a loan.
Apply for what you need not what you want
Just because you qualify for a $100,000 loan, and you only need $30,000 to get started, doesn’t mean you should opt for the higher loan amount. Remember, if you’re in the early development stages of your business, cash flow is minimal during this stage. Furthermore, you don’t want to pay interest on a loan for money you have spent yet.
Always ask as many questions as possible
If you do not understand something, particularly your loan terms, make sure you get clarification first. Do not sign anything without understanding what you’re getting yourself into first. This is a long-term commitment that you cannot afford to not understand.
Inquire about all fees associated with the loan
Ask if there are any fees associated with the loan (pay close attention to “hidden fees”). Research what your state allows lenders to charge in fees.
Keep your banker abreast of any major changes
If anything changes with your current situation such as credit or financial, let your banker know ahead of time instead of the last minute. You don’t want last minute issues to “kill” your deal.
Get everything in writing
Loan terms, changes, fees, everything!
Keep Track of all of your documentation and correspondences
Keep records of all of your documentation, when items were submitted to the bank, when responses were received as well. Follow up via email any time you have a telephone conversation with your banker or anyone at the bank.
The entire loan process may take a while. Each lender is different and have various turn-around times. Many lenders deal with time constraints, heavy volume, some may take their time with analyzing loan files to ensure accuracy, and to minimize risk for the bank which adds time to the loan process.
Accept loan terms that you know you can make on timely payments for
Be honest about your repayment terms. If you are unable to make the payments, meet the loan terms, don’t agree to it. It will hurt you in the long run.
Do not spend any money until your loan is closed
If your loan is denied for whatever reason, you will be stuck with the bill. Counting on money you haven’t received yet is a huge mistake that a lot of business owners make!
Financing your small business is sometimes necessary for many reasons including growth and expansion. Find a lender who understands your vision. Work with a banker whom you can build a relationship with. Have you recently applied for a small business loan? Please tell us about your experience below, and what advice you can give to those who are looking to do the same.