How to position your business to win credit approval from your bank

If you’re in a position to grow your business to the next level and you need working capital to make that happen, you may be worried about your ability to receive credit. But banks today are extending loans and lines of credit to businesses that have a solid track record, a strategic plan in place and a strong relationship with their bank, says Don Pilmer, executive vice president of Old Second National Bank, Aurora, Ill.

“What has changed in banking over the years is that many community banks used to be able to do business based on relationship and reputation,” Pilmer says. “A longtime customer could say, ‘You know my business is good for it, we’ve been around for 20 years,’ and sometimes that was enough for a community bank that really knew that customer and the company well.”

With heightened regulatory lending requirements, “Underwriting is much more stringent in today’s world than it has ever been,” Pilmer says, citing the mortgage industry fallout and economy as factors.

That said, banks are eager to do business with commercial customers as government stimulus programs and various elements of the Small Business Jobs and Credit Act of 2010 will improve access to capital.

“The government is doing what it can to stimulate activity, and there are various SBA initiatives that are supporting expansion of existing businesses and allowing for some fairly attractive financing initiatives,” Pilmer says.

Smart Business spoke with Pilmer about how business owners can position their companies to secure loans and credit lines in today’s stricter lending environment.

What are banks looking for in a borrower?

Banks are always interested in doing business with borrowers who show that they have a strong handle on where their businesses are going, what they need to do to succeed and what risks they will confront.

Sure, banks appreciate optimistic owners who see bright, profitable futures for their businesses and need the working capital to reach goals. This type of entrepreneurial spirit is what keeps small businesses going and, as a banker, it is refreshing and gratifying to work with ambitious people.

But banks also want to know that owners have developed a plan for how to manage the downside, that they have analyzed the risks, the worst-case scenarios and the what-ifs, and how to manage those scenarios. Banks would also like to see the owner’s plan for how he or she will turn the business back toward the goal if things don’t go as planned.