Show The Banker You Know What You Need
Prepare a loan proposal, a brief description how much money you need, what it will be used for, and how you will pay it back. Elements of the loan proposal are:
Name of borrower
Amount of funding needed
Use of the funds (inventory financing, implement new marketing programs, purchase plant & equipment)
Type of loan being sought (revolving credit line, term loan)
Term of loan: number of years you need the money before it can be paid back
Closing date (when do you need the money-give yourself several months)
Rate: Propose an interest rate based on your research of market conditions. The posted rate of banks is subject to negotiation, as with all the terms and conditions.
Takedown: If you will use the money in stages, let the banker know ahead of time.
Collateral: What assets of the business can be pledged as security (receivables? inventory?)
Guarantees: Will the owners offer personal guarantees?
Repayment schedule: When will you pay back the money?
Sources of funds for repayment: How will you pay back the money? (cash generated by the business, refinancing of the debt)
The loan proposal accomplishes several things for the borrower: it shows you understand the current interest rate climate and intend to negotiate the best deal possible for your company. You are familiar with banking and finance terminology--and most importantly, you are telling the banker what you need and what you will pay for it rather than waiting for him to come back with a proposal of his own.
That Bank Is Too Big, That One is Too Small...But This One Is Just Right
Banks vary widely not only on the size of commercial loans they can make based on their asset base, but on their attitude toward doing business with smaller or emerging companies. Banks have an "inventory" of money they are allowed to lend, and sometimes, the inventory is higher than at other times. The stage of your local area's economic cycle also affects the reception you will receive at the bank. If lenders have suffered large losses on real estate loans recently, the bank may take a generally conservative posture on all loans, including credit lines to growing, profitable small companies. You can contact your CPA, consultants and other intermediaries who deal with banks to find out which banks are currently most actively seeking loan customers like your company. Because you have been turned down by one bank does not mean that you will receive an inhospitable reception elsewhere. Bankers may all dress alike (they get quantity discounts on gray suits), but they don't think alike.
Ask Questions
Remember to conduct your own due diligence after you have arranged a meeting with a banker. Because the act of borrowing seems to automatically put people in a psychologically subordinate position, they sometimes forget to ask the kinds of questions they need to decide if the bank is the right one for them. Some of the things you should learn include:
Whether the banker has experience with your industry and companies your size.
How aggressively is the bank seeking out loan customers.
References of other commercial loan customers, to find out what kind of experience they've had with the bank.
The steps and time frames leading up to your loan being funded.
Who you will be working with at the bank (the decision making structure).
These tips will help you get a small business loan.
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