Applying for a business loan can be like kayaking through river rapids; you would be foolish to do either without adequate preparation and the watchful eye of an experienced guide.
Although Dan Waldeck has never pulled someone out of churning waters, he has led executives through the loan application process as senior vice president and relationship manager at National City Commercial Banking. And he says that the most successful applicants are those who practice due diligence before submitting their loan for approval.
That preparation can take many forms, but Waldeck says that the best way to prepare is to devise a state-of-the-company report.
“What I’ve seen that has been very successful is when executives will sit down and prepare anywhere from two pages to 25 pages depending on what’s going on with the business that survey not just the financial performance but what they’re projecting for the future and what are the challenges,” he says.
That report not only gives loan officers helpful background on your company, it also helps you by shedding light on the merit of a given project.
After taking a disciplined look at your current situation, for example, you may have to modify your strategic plan before seeking a loan. Or you may have to scrap your plans entirely if an opportunity isn’t as beneficial as you had first hoped.
When conducting your analyses, you should also look at the state of your industry and the economy in general.
Waldeck points to the recent talks of recession as an example: “Right now, we’re in a declining, short-term interest rate environment. It may not be a positive thing that economic indicators have declined, but it does mean that borrowing rates have gone down in the last six months.”
Whatever the state of your company, industry or the economy, Waldeck says that you shouldn’t feel alone when conducting your initial analysis. If you’re struggling, have questions or simply need help getting started, don’t be afraid to approach your loan officer.
“A banker that adds value will assist through the process,” he says. “We’re just not asking you to come in and do an information dump. We want you to feel like we can help you. If you want to contact us even earlier in the process and say, ‘Well, this is just what I’m kind of thinking. What direction should I go with this as I do a business plan?’ That’s something that we can help with.”
Waldeck doesn’t just suggest approaching a loan officer in the preparation phase, but he actually encourages it. Bankers can provide you with guidelines to help steer your planning, and they can alert you of regulations that could affect the status of your impending loan application. But however you use them, it’s important that you open up some channel of communication with a loan officer before you submit your application.
“Communication is so important,” Waldeck says. “We find that the very successful business leaders are the ones that are communicating with us in advance. They should not feel shy about telling us about good news or bad. The main thing is to keep the communication channels open. That allows us to add more value.”
Throughout these initial steps as well as the application process itself, hold your loan officer accountable. Waldeck says that one of the best ways to ensure your loan is approved is to treat your bankers as partners.
“A banker that is truly worth his or her salt would be somebody that considers it a partnership and walks the business leader though the process,” Waldeck says. “Make sure that he or she fully explains the process.”
HOW TO REACH: National City Commercial Banking, (216) 222-9020 or www.nationalcity.com/commercial-banking/pages/home.asp
What is your banker looking for?
All the preparation in the world won’t do you any good if you don’t know what a loan officer is specifically looking for. While the details may change based on your banker, your company and your desired loan, there are four general things that can make or break any application, says Dan Waldeck, senior vice president and relationship manager at National City Commercial Banking.
- Management “When I’m looking at a business loan request, it always starts with management the individuals that you’re dealing with from a character standpoint. What type of command do they have on the business that they’re talking about and the knowledge of the marketplace and so forth?”
- Business model. “A banker that is adding value and that would be a good partner for business leaders is one that really tries to understand the business model for that leader. Is it a compelling business? Does it appear to be sustainable on an ongoing basis? That’s important.”
- Cash flow. “If it’s a company that has existed historically, we look at historic cash flow. If we added, say, a million-dollar term loan, can the company afford this on a historical basis?”
- Collateral. “Falling in behind (cash flow) would be, what type of collateral is there to support it?”