When a small business needs capital, a small business loan from a bank comes first to mind. Banks want to lend to companies that have a record of profitable operations, that generate cash flow sufficient to repay the loan, and that have enough collateral or assets to secure the loan. A clean credit record for both the company and the principals of the company is mandatory; few late payments, and no bankruptcies or foreclosures.
Most start-up companies do not quality for traditional bank financing unless the founder has the personal net worth and income to guarantee the loan. The loan then is a really a personal loan to the founder rather than a business loan.
Check with the bank that you have your business accounts with for the person who handles commercial or business loans. You will be asked to provide financial statements for both you and your company for the last several years as well as tax returns. You may also be asked to provide documentation as to the accounts you have, both personal and business. A business plan will be required and you will most likely have to complete the bank's own loan package.
You will have to personally guarantee the business loan, which means any and all assets you have will be pledged to pay off the loan if your business doesn't. If you live in a community property state, your spouse must also personally guarantee the loan.
First Tip: The acquisition of a bank loan takes time, as with any form of financing. Begin the process of finding a loan several months, at least, in advance of when your company needs the capital.
Second Tip: In looking for a bank loan, you are really approaching a vendor (the bank) to see if you want to buy his product (money). Don't approach the situation like a starving peasant who desperately needs food (funds) to stay alive. The bank needs you or it has no revenue (except of course for the exorbitant amount of interest it earns on VISA cards).
Cash (flow) Is King
Before approaching a banker about a loan, it is imperative to prepare a detailed cash flow forecast to determine how much capital you need, and how and when the loan will be repaid. To the banker, the cash flow forecasts--and historical financial statements--are extremely critical. The venture capitalist has lofty goals for his relationship with your company--to earn a fantastic rate of return over a variable length of time. He may cash out of the business in 3 years, maybe 5, but in any case, he wants to create great wealth out of his participation in your company. The banker has more modest goals--to get his money back with a specified rate of interest--but he is much more concerned about timing--getting the interest and principal back from you at prearranged points in time--and in protecting his original investment. The banker, too, responds to forecasts that are realistic and containing detailed assumptions. Just as the venture capitalist tires of reading Business Plans with ridiculous or unsubstantiated projections, the banker appreciates well-thought out numbers grounded in reality.
Tell The Banker About Your Business
You also must prepare a Business Plan-type profile on your company to enable the banker to better understand your business. The Business Plan is your marketing tool again, just as it was with the venture capitalist. It also shows the banker your ability to plan and organize your company--skills that will enhance your ability to pay him back.
Follow these tips and you'll be successful in obtaining a small business loan.
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What do I need to apply for a small business loan through my bank?
I have a photography studio I would like to build on and hopefully start a business. I need a loan to do some renovations and get necessary equipment. What do I need to apply for a small business loan? Thanks for any help.
I’ve done a lot to promote my business, I just want to actually open the store now. I want this to be legit. It’s a big dream of mine!
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Business loan companies requires a loan applicant to have a business plan or business proposal make sure the business proposal is pretty impressive
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which bank is flexible for small business loan?
Hi,
Does anybody know which bank is little flexible in approving small business loan? I want to avoid applying for loans from bank to bank which will hurt my score. I have small business which is in operation for more than two years now. I am in Oregon now. Your advice would be appreciated.
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I live in oregon too.
Unless you have a killer business plan and some equity like 25% or better, it will be tought,
yeah, don’t go from bank to bank just ask for a good faith estimate from the different banks.
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How does a bank benefit from a small business loan?
Unlike an investor ready business plan where invstors gain some of the profit, a bank gives out a loan and has no relation to the business. How does the bank benefit from giving this loan?
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The bank earns interest on the loan, same as they would from a personal loan.
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How to contact small business loan department of a bank to sell them online advertisement?
My online business provides a steady stream of companies looking for business capital and business loans. I want to contact the small business loan department of a bank, such as Bank of America, Capital One, American Express, and sell them membership (if they are a member, they can see hundreds or even thousands of hot prospects every month). How do I find the contact phone and person? I contact customer service of Bank of America but they don’t give the contact information to me. Besides, should I contact their e-commerce marketing department, or the loan department, or both?
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Those companies don’t need outside marketers like you to sell their services. Find much smaller businesses to market to, the ones that don’t already spend millions on their own advertising.
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Applying for a small business loan from bank, what should I bring to be prepared? Some sort of bus. proposal?
We (my husband and I) are going into the bank tomorrow to apply for a small business loan for a mortgage company. We have already established the incorporation 1 month ago.
My husband is a mortgage loan officer and has 5 yrs. experience. We would be using the money for renting an office, advertising, purchasing supplies, etc.
Our only concern is that our credit is poor.
What should I bring with me to convince the bank that our business would be a good investment for them?
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The bank will just give you an application form to fill up. You give them your info — SSN, etc. and they will start pulling your credit reports.
When you come back with the application form filled up, include a sort of summary of a business plan with a description of the business, financial projections, cashflow, etc. (you don’t have to write 50-100 page business plan — if your credit is bad, they may not even want to read your business plan, just disapprove you outright)
Then bring documentation of your assets and collateral that you will need, from bank certificates, stocks, etc.
However, with poor credit, you stand a lower chance of getting a loan — unless you can demonstrate you have substantial collateral and equity investment in the business
But talk to the loan officer or manager and ask him/her what you can show them to improve your chances of getting the loan
Remember banks only want one thing: the security that they will get their money back — with interest.
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what do I need to provide to qualify for a personal or small business bank loan?
I am fairly new in the u.s here, will need some loan to do stuff, what are the requirement to qualify for such loans. I would gladly like to have an idea what the interest rate on such loans are for my planning. Bank want a one on one discussion on this issue but my work schedule is so tight, unable to visit at this time.Can somebody share?Great ideas are welcome. Thanks.
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Some banks extend what they call “small business lines of credit” often through credit cards. Those are easier to get and can be based on your credit history alone. They typically are up to $100,000.
For example, Wachovia’s has various business lines of credits Their business line of credit can even be approved overnight,
However, if you’re applying for a loan and if it is a big amount, banks and even the SBA may consider other factors aside from your business credit:
- A business plan explaining what the business is
- Your background and experience in the business — in my experience, this is KEY in the eyes of the bank because they want to make sure that you know what you are doing and that you can make the business work. If you don’t have any experience with the business, have someone on board that knows the business to give banks assurance that someone will guide you
- Your credit factors because it shows your dependability and how well you handle credit. They will do a credit check on you and poor credit history may be frowned upon, or even reason for the disapproval of your loan application
- Your collateral. Banks, even SBA guaranteed loans, want the borrower to show collateral. They want to be guaranteed that somewhere somehow they can get payment from you
- Condition or terms of loans. Banks would want to know three important things: “How much money are you requesting? What will it be used for? and For how long will it be needed?” Banks oftentimes prefer to approve loans for items that can be identified, has lasting value, and can be repossessed and sold if things fail.
- Equity investment as banks want to see you invested in the business as well (they wont give you the full amount you need)
Aside from banks I suggest you consider microloan providers. They typically fund up to $30K Read about the SBA Microloan Program and you can find SBA Accredited Microloan Providers here
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