Tag Archive for 'loans'

How to get a bank loan: Part Two

Since most businesses have been deleveraging post-2008 financial crisis, you could be forgiven for getting rusty at how to ask for a loan from bank. But as the economy picks up and you need growth capital, it’ll be handy to brush up on your banking skills.

Last time, I used the customer qualifying process as an analogy for how to work with your banker to get a loan, and offered the first three of six loan request factors: Who makes the decision, what do they need and how do they want it? Now let’s talk about the last three.

What motivates them?

All banks need to make loans, but all banks don’t like the same kinds of loans. Some banks make working capital loans, and some don’t. Most banks make real estate loans, but each one has its own profile of what kind of real estate they like. And all banks like to loan money for things with serial numbers, like vehicles and equipment. In your first meeting, what the banker says about your proposal should indicate their level of interest in your type of loan. But if not, it’s okay to ask.

Banks will fight for loans, but they’ll kill for deposits. Checking account deposits are virtually free money to a bank, a portion of which they use to make loans. They like personal checking accounts, but LOVE business accounts. A bank’s motivation increases with your daily deposits if you place your operating account with them. You should know the value of your deposits to a bank and use that information to negotiate rates and terms.

How motivated are they?

You can tell how motivated a bank is by how helpful the loan officer is.  Her excitement is no foreteller of success, just of motivation.  But if she seems indifferent or unmotivated, that’s probably not a good sign.

A deal that couldn’t get through the front door of Bank A this morning, could be received with a red carpet at Bank B this afternoon. So be prepared to take your proposal to more than one bank. And be sure at least one of the banks you make a loan proposal to is an independent community bank.

What do I have to do?

Bankers love field trips. Give your banker a demonstration of the new equipment the loan is for, or take them to see the real estate you want to buy. Show them how the object of your loan request will help you grow your business, profits and deposits.

The best way to get a business loan is to do your homework, anticipate what your banker needs and get them what they ask for. And if the bank that was loyal to you when you needed them doesn’t have the best deal — but it’s a deal you can live with, “dance with the one that brung ya.”

Write this on a rock …

Understanding how banks make business loans will improve your chances of getting one.

How to get a bank loan: Part One

One of the markers of this post-recession, so-called recovery has been the practice of deleveraging. Across the economy, from consumers to businesses large and small, debt has become something to get rid of.

Out here on Main Street, this trend has manifested in a dramatic drop in bank borrowing by small firms. Indeed, for more than a half decade, survey after survey has shown that less than 5% of business owners report their borrowing requirements have not been met, while the majority say emphatically they don’t want or need a loan. Consequently, there’s a pretty good chance your business hasn’t made a loan request to a bank in a while.

But the economy will eventually kick into an expansion phase, and what has become no less than a de facto moratorium on borrowing won’t last forever. And since most small business growth capital comes from bank loans, even for well-capitalized firms, it’s always good to revisit a few banking relationship fundamentals.

But don’t worry. If you’ve never asked a banker for a loan, or if it’s been a while, getting a bank loan is a lot like the process of qualifying a prospective customer. For example, you want to know these three things:

1. Who decides?

You have the right to ask who is going to make the decision on your loan. Can your loan officer decide, or will it go to the local loan committee or somewhere else? Why do you care? The more people involved in the loan approval process increases the scrutiny of your deal, which means more questions and more time for you to budget from proposal to answer.

2. What do they need?

Your banker will ask for personal and business financial information. They might accept last year’s business numbers, but they could also ask for an interim report. Depending on the size of your request and what you’re using the money for, they may ask for a business plan. If the loan is for real estate, a current appraisal will be required.

Don’t give the bank more than they ask for, but give them everything they ask for. Remember, the quicker your banker gets the information, the quicker you’ll get an answer.

3. How do they want it?

Ask your banker what information can be presented verbally and what needs to be in writing, whether hard copy or electronic. Whether you’re borrowing $5000 for a computer, or $5 million to buy out a competitor, knowing as much as you can about the loan approval process will significantly improve your chances of not only getting a quick answer, but a yes.

Next time, Part Two: What motivates your banker.

Write this on a rock …

Qualify a bank like you do customers, and be sure to do your homework.

Small Business Borrowing Will Be A Lot Different In 2025

One of the interesting business trends to have witnessed going back a decade is how small business owners have chosen a loan source. But the future trend should be even more interesting.

Looking back, there have been primarily three sources of loan funds for growing small businesses:

1.   Large, multi-state banks

2.   Community banks, locally owned and managed

3.   Credit unions, also locally determined

In a recent online poll we asked small business owners about their borrowing preference. One-sixth of our respondents chose “large bank,” which is down from a decade ago. Following the 2008 financial crisis large banks stopped lending to small business while they struggled with their own regulatory stress test. They’re lending to small businesses again, but are now in catch-up mode.

One-eighth of our sample selected “credit union,” which is higher than the past. Much to the chagrin of banks, credit unions have expanded their customer profiles to include small businesses, aren’t taxed like banks, and aren’t subject to community reinvestment requirements. I predict the credit union loan option will grow for small businesses going forward.

More than two-thirds of our small business audience told us they borrow from community banks. The Independent Community Bankers of America (ICBA) report they make almost 6 of 10 small business loans nationally, so our folks are a little more active with these lenders. Perhaps, since I’ve long espoused the natural symbiosis between Main Street businesses and community banks, I’ve influenced my polling audience to move this needle beyond the national average.

The big news of our poll is that crowdfunding popped up on the lending radar for the first time. The number was only 3%, but this credit source is very new.

Right now crowdfunding loans fit small businesses that aren’t bankable for one reason or another, but are strong enough to handle the associated higher interest rates. I predict over the next decade crowdfunding will claim a larger piece of the small business loan pie for three reasons:

1. Crowdfunding rates will become more competitive

2. It won’t have banking regulatory challenges

3. The virtual, online aspect of crowdfunding will appeal to the next generation of entrepreneurs

Recently I attended a convention of bankers and asked several of them what they knew about crowdfunding. Most had not heard the term, only a couple of those who had heard of crowdfunding knew how it worked and none understood the future implications to their industry.

Bankers, call your office.

Write this on a rock …

Small business borrowing will be a lot different in 2025.




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