|
Applying For A Business Loan: Putting Your Best Foot Forward
By: John Day
Remember the book called “Catch 22”? It is now commonplace to call a “Damned if
you do, and damned if you don’t” situation a “Catch 22”. This is a predicament
that many small business owners have found themselves in. Running short of cash,
the owner goes to the bank to borrow money, only to find that they don’t qualify
for a loan because they don’t have enough money. This is quite maddening to the
business owner who laments, “If I had enough money, I wouldn’t be asking for the
blankety-blank loan!”
Seems kind of stupid, but you have to understand what bankers are up against.
Number one, they have to have some assurance that they are going to be repaid.
They have to sell this loan to the “loan committee” of the bank, and they are
not about to present a package that will make them look foolish. Furthermore,
they have auditors who look very closely to make sure the loans were issued
according to bank policies and procedures. If a loan officer has too many loans
that “go south”, then his/her track record starts to affect his/her career.
This is why you find many loan officers who go strictly “by the book”. These
people refuse to look at any extenuating circumstances that might indicate that
you would be a “good risk” regardless. Unless you fit into their narrow criteria
of “risk” you might as well forget it.
It is best to find a bank manager or loan officer who has plenty of
self-confidence, is familiar with how small businesses operate, and is willing
to look at the big picture. They can sense whether a loan applicant is solid or
shaky. This is the point at which you, the applicant, will want to put your best
foot forward.
You may find that as long as you have substantial equity in a home, good credit,
and adequate cash flow that you are a tasty morsel in the mouth of a loan
officer. However, if you are short in any of these areas, you are going to have
to overcome the banker’s natural skepticism.
First impressions are paramount. If you are not organized, you are dead meat. If
you are asking to borrow money, then you must possess the skills necessary to
pay the money back. These are skills, such as, the ability to think and plan
ahead, and the discipline required to operate your business in a professional
manner. This means having the know-how to gather information and organize it in
such a way that you can make meaningful and timely decisions.
Ask any banker and they will tell you of countless business customers that come
in seeking a loan who don’t even know what a financial statement is. There are
many other business customers who seek loans that do have a financial statement
but haven’t a clue as to what it means. This does not bode well for first
impressions.
Compare the individual who comes to the bank, nicely dressed, well groomed and
possesses not only a financial statement that he/she understands, but has a plan
as to how he/she will pay the loan back. This phenomenon is so rare that a
banker will usually sit up and take notice.
If the reason you are short on cash and need a loan is because you are a poor
manager who is in denial about your failing business, it will be obvious to the
banker. Bankers are objective. They are not going to throw good money after bad.
However, if you have a healthy business and you want to finance a new piece of
equipment that will enhance your revenue earning capacity then your request will
seem reasonable. Perhaps you need a line-of-credit to shore up your cash flow
during less productive seasons, and you plan to pay back the line during
productive seasons. These are the kind of stories that make good business sense
to a banker.
To back up your story, you will need a Balance Sheet and Profit & Loss Statement
that reflects the history of your business activity. Included should be an
analysis of your business trends using some key business ratios. If the numbers
look good, then go for the loan. Remember though, you can’t rely on the banker
to recognize all the positive aspects of your business, therefore, you should
provide a narrative of how your business works and why the requested funds for
the business will help you make more money.
About the Author:
John W. Day, MBA is the author of two courses in accounting basics: Real Life
Accounting for Non-Accountants (20-hr online) and The HEART of Accounting (4-hr
PDF). Visit his website at http://www.reallifeaccounting.com
to download for
FREE his 3 e-books pertaining to small business accounting and his monthly
newsletter on accounting issues.
|
