Getting a loan for your business can seem like a daunting task if you don’t know where to start. In reality, it doesn’t have to be difficult. There are a number of ways you can show a lender you’re a capable borrower — it just takes a little knowledge and preparation.
Smart Business spoke with William Dickson, Jr., Senior Vice President and Commercial Lender at Northwest Bank, about how businesses can increase the likelihood of securing a loan.
What can companies do to help their chances of securing a bank loan?
Securing a loan from the bank really comes down to knowing what the lender is looking for and compiling that information to help the lender make its decision.
When you come to the lender meeting prepared with financial statements, a business plan and knowledge of your industry, it shows that you’re credible and can help speed up the loan process.
As a business leader, show your bank that you have put a lot of thought into this plan and what it can do for your company. Do your research, know your market and have a loan payback plan in place. Lenders will see that you’re serious and invested in your company’s success.
What are some common mistakes companies make as they go through this process?
One of the biggest mistakes businesses make when applying for a loan is being unprepared. In order to truly understand your needs, the bank needs to take a thorough and holistic look at both your business and industry. If you can’t answer questions about your business plan, finances or how you would use the loan to your advantage, it could cost you the loan approval.
Business owners are encouraged to keep their business and personal finances separate. Maintain detailed records of financials, including bills, revenue and other debts. All it takes is proper organization and solid planning.
Lastly, a big mistake is not having a well-thought-out “Plan B” of what you’ll do if things don’t quite work out the way you intended. Having a solid secondary way to repay the proposed loan will go a long way with the bank.
What if a company is reluctant to pursue a loan due to recent challenges with the business?
Financial situations can vary depending on the type of business and industry. Businesses that operate seasonally, like a ski resort, may need a loan during the offseason so they can pay their bills and staff.
Taking out a loan when there’s a lull in business may not make sense for everyone, so it’s best to assess your overall needs, consider how much cash you have on hand to cover expenses and have a conversation with your local lender to determine if a loan is the right decision for you.
Alternatively, a good banker can help you understand what you need to do or how to structure your business in order to qualify for conventional bank financing. If you’re not completely sure, engage with your banker and have a conversation to address your concerns.
How much do banks consider the presentation and approach when deciding whether to approve a loan?
It’s hard not to notice an obvious lack of preparedness when you’re in a business meeting. When you come to a meeting prepared with your business plan and a thorough background knowledge of your industry, the bank takes notice.
With proper planning and good organization, getting a business loan doesn’t have to be an intimidating process. Lenders can help answer your questions, so don’t be afraid to ask if you’re unsure about something. ●
Northwest Bank is Member Federal Deposit Insurance Corp. (FDIC), Equal Housing Lender
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