How to wow your banker and secure a business loan

Entrepreneurs need money to start and grow a business. Unless you can bootstrap through personal assets or have angel investors in your pocket, at some point, you’ll want to apply for a business loan or line of credit from a bank.

In some ways, bankers are like entrepreneurs. They’re always seeking new clients and wouldn’t stay in business if they didn’t lend money. Your job is to make it easy for them to lend money to you. Here’s how.

Ask your peers. Talk to successful business owners and see who they use for financing. Your local chamber of commerce is a good source.

Choose a bank that serves entrepreneurs. Find a bank approved by the U.S. Small Business Administration. Many small businesses start with SBA loans, graduating to conventional loans after they’ve established a track record. Even if a business bank can’t issue a loan, its lending officers can connect you with investors, grant opportunities and funding programs sponsored by universities, private foundations and government entities.

Get to know your banker before you need to ask for a loan. Set up accounts for personal savings and checking, business credit cards, merchant processing, etc.

Toot your horn. Your banker wants to see that you have the gravitas to run a thriving business. Be prepared to show your skills, determination and self-confidence, both in your business plan and through anecdotes.

Demonstrate financial strength. Bankers want to know your personal and business net worth. They use past credit history as an indicator for the future. Make sure you have explanations for any blemishes.

They also ask for investment as proof of commitment, an injection of capital and/or collateral for the loan. Most SBA loans, for example, require about 30 percent of the loan value as collateral, while the bank guarantees the remaining 70 percent through the SBA.

Illustrate how you’ll succeed. Tell the story of how your business will grow. Be prepared to prove or qualify every assumption in your business plan.

Show them the money. Banks are averse to risk; they loan money only when fairly certain it’ll be repaid. So, it’s vital to show how you’ll make a profit. Submitting detailed financial projections helps the bank understand your business and how you’ll use the funds.

The financial section of your business plan — cash flow statement, income statement (profit and loss statement or P&L) and balance sheet — needs to paint an accurate, comprehensive picture of projected investment, income, expenses and cash flow. How important are financials? Extremely. Most bankers tell me they skim through the business plan and then flip directly to the financials if they’re interested.

Ask for advice. After you submit your plan and financials, ask for feedback. Correct shortcomings before submitting your final loan request.

Be persistent. You may not receive the loan. Ask your banker to explain why. Then, keep planning while you pay down debt, build credit or explore alternative funding through family and friends, crowdfunding or investors. Energy and persistence conquer all things, as Benjamin Franklin once said.

 

Greg Ubert is the founder and president of Crimson Cup Coffee & Tea. Since 1991, Crimson Cup has roasted sustainably sourced specialty and craft coffee in small batches. The company also teaches entrepreneurs to run a successful coffee shop through its coffee franchise alternative program, which includes a coffee shop business plan. Crimson Cup coffee is available through a community of more than 350 independent coffee shops, grocers, colleges and universities, restaurants and food service operations, as well as in the company’s own coffee shops in Columbus.