Tips from a Banker on Small Business Lending
by Paul Long
In 2008, getting credit was difficult for small businesses and it held back the US economy. Now in 2015, the economy is getting better and banks are lending for real estate, equipment and working capital needs. There is no doubt that the economy is growing and small businesses are seeing increasing profits. Banks are recognizing this and are lending more money.
Below are some tips to assist small business in getting the loans they need and the banking partnerships that they deserve.
What do I need to apply for a loan? Make sure that you have access to your last 3 years personal and business tax returns as well as bank and brokerage statements. Also, banks will have you fill out a Personal Financial Statement asking you to list assets on one side and your liabilities on the other. If you are a startup or a business under 2 years old, have your business plan ready along with financial projections. This information will allow your banker to expedite the financing process and get you a decision quicker.
What is SBA Lending? Many people believe that SBA is a pot of money that the government has to lend to Small Businesses, that isn’t the case. SBA does not make loans itself, but rather guarantees loans made by certain banks. In this way, taxpayer funds are only used in the event of borrower default. This reduces the risk to the lender, but not to the borrower. The role of SBA is to assist banks in helping businesses get loans that they may have not approved before. In most cases a the SBA can offer banks a 40% to 85% loan guarantee depending on the loan type and dollar amount. The bank is still taking a risk, therefore each bank and SBA have different underwriting criteria. It is best that you talk with your banker to see if an SBA loan is right for you.
What resources are out there to help? Good news! There are many resources out there that can assist you in building your business at any stage. Partners like Score (www.score.com) helps startup businesses with the business plan and start up financing. If you have been in business for at least 2 years the Small Business Development Center (SBDC) (www.wsbdc.org) is another great resource that specializes in taking your business to the next level. Best of all, these resources are of no cost.
Is your banker a consultant to your business? When you think of your small businesses “board of directors”, is your banker on that list? A good banker knows you and your business. They should understand your product/service and be a champion for you. A banker can help prevent you from making mistakes other small businesses have made in the past.
In turn, do you reach out and talk to your banker when you have a question, concern or are about to make a large financial decision? Your banker should be a resource not just when you need a loan or your line of credit is up for renewal.
Finding a qualified Banker- It is more important than ever that you have a banker that is willing to work with you. Each bank has different growth strategies and market segmentation. Smaller banks tend to be more small business friendly due to their community nature and willing to work with you not only on your loan request, but be willing to sit down with you and give advice for your future growth. Also make sure to interview your banker and make sure that they have knowledge of your industry and are used to working on loan amounts that you are requesting.
Most of all, if you have questions reach out to your banker. If you are not sure who your bankers is, that is a red flag. It might be time to think about switching to a bank that wants your business and is ready and able to be there for you when you call.