4 Things to Get in Order Before Asking a Bank for a Loan

Improve your odds of getting a business loan by first getting these 4 things in order.

Finding the perfect location and space for your business isn’t always easy; however, getting a bank loan tends to be even more difficult and time-consuming. We know; we’ve been through the process with our clients many times. Even when we find the perfect business location, our clients still need to secure a loan, which can be challenging for many business owners – especially those who are unprepared.

While there’s no quick way to change your business income, finances, or credit history, there are some things you can do to prepare before applying for a business loan.

Make sure you’re prepared by pulling together four essential items before you even approach a bank.

1. Business Plan

The #1 thing banks want to see is a current, solid business plan. Most banks won’t even consider your loan application without it. Unfortunately, most business owners either don’t have one in place or, more commonly, dig up an old one that’s out of date. Keeping your business plan current will save time when you need funds quickly, and will be one less thing you’ll need to gather during the loan process application.

Organize your plan to be easy to read by breaking it into different sections: market research, situational analysis, target client base, mission and vision statement, strategies and goals, estimated sales calculations, and profit projections. Also be sure to include your résumé to “sell” your business knowledge and experience as an owner.

It’s important to disclose financials such as cash flow and tax returns. Remember, while taxable losses save you cash at tax time, it’s a bit of a catch-22, because they can hurt you with the bank. Banks only see it as a loss and don’t care about the savings.

Another thing the bank will want to know is know how the owners will be paid, and if they are reinvesting money into the business. Banks ask about your collateral, such as commercial real estate assets or property, to be sure they will be repaid. A well-detailed business plan reassures banks that you have a solid plan for the future and demonstrates your ability to pay back the loan.

2. Industry & Client Analysis

While these analyses would be a part of the overall business plan, we’re calling these out separately here because most business owners fail to see the importance of this information. If you show you have a firm handle on the industry and your target clients, this gives banks the confidence to take a chance on you.

  • Industry Analysis –Your industry analysis should touch on the current and projected market, competition, and identity strengths, weaknesses, opportunities, and threats (referred to as SWOT analysis).
  • Client Analysis – Banks will want to examine a client analysis to see who you’re selling to, which is why we encourage our clients to include research and demographics. (Tip: a summary of client satisfaction surveys, if applicable, adds a personalized touch to this section.) But that’s not all banks want to see. They also want to know about any threats to those clients. An example of a threat would be a new technology that could possibly threaten your services, coupled with a plan to counter those threats. Overall, a client analysis is a great way to further validate your credibility as a business owner, and it shows the bank you’re an informed business owner with a plan.

3. Owners’ Personal Credit

Many banks will review the owner’s personal credit before approving a business loan. It’s pretty obvious – if your personal credit isn’t desirable, then the bank’s assumption is that you would take the same approach to your business finances. We’ve seen banks look at the owner’s spouse’s credit too. Sometimes owners haven’t cultivated favorable personal credit , but all is not lost; the biggest and simple thing you can do is to pay your personal bills on time to help your credit recover. This avoids being categorized as a “slow pay,” which is probably the biggest strike against a loan applicant.

4. Relationship with the Bank and Past History

Establishing a relationship and past history with a bank can make a big difference. One way you can do this is to take out a loan when you don’t need it. It sounds odd, but if business is doing well, you’re in a good position to pay the loan back on time. This will likely increase your chances of getting money when you really need it most because you’ve established credit history. An ongoing relationship with a financial institution is what’s called an “intangible” asset. While the business plan is always the most important thing, a relationship and a history with a bank can count for a lot.

Don’t waste your time going to a bank without getting these things in order first. After all, securing a bank loan is time-consuming, stressful, and can take your focus away from business operations. By planning ahead, you better improve your odds of getting a loan you want with favorable terms.

Finding your perfect location and space for your business and obtaining a bank loan doesn’t have to be difficult when you have a trusted commercial real estate advisor. Contact Verity to speak with an experienced real estate professional.