Asking for a loan Featured

5:52am EDT June 30, 2003
Applying for a business loan doesn't have to be a nerve-wracking experience.

Being prepared and having a good, open relationship with your banker makes the process proceed smoothly. If you don't have that comfort level with your banker, it may be time to shop for a new financial institution so your banker can become your business partner in the loan transaction and in future business endeavors.

When applying for a loan, ask your banker to meet with you at your business, especially if he or she has never been there. Give him or her a tour of your operation and explain why you're requesting a loan. Be clear why you're seeking funds, as the reason could range from wanting a line of credit to needing money to purchase new equipment for expansion purposes.

It's helpful to have a complete application package prepared when meeting with your banker. You'll be asked to provide two to three years of business tax returns and/or profit and loss statements and balance sheets, along with your personal tax returns. Your banker will also want to see your personal financial statement.

Since the assets of the business usually secure lines of credit, you'll need to provide a list and the age of your accounts receivable, if applicable. If your business has equipment, you might be asked to provide an inventory list and value of each item.

If applying for a term loan to be used for a specific purpose, provide estimates, actual invoices or purchase contracts, disclosing the prices of the purchases. In most cases, banks won't provide 100 percent of the purchase price, so be prepared to show where your portion of the cost is coming from. This amount usually ranges from 10 percent to 20 percent of the total costs.

If you're seeking a commercial mortgage, you might be required to pay for an appraisal, and possibly, an environment assessment. Ask your banker to make a decision on your loan based on the financial information before you incur these costs. Ask for a list of projected costs that will be involved with the real estate loan so you're prepared for the closing costs.

Once you've submitted your loan package, expect your banker to be creative, providing you with rates, fees and payments. Your request might include a combination of needs. For example, you might need a line of credit along with a term loan for equipment purchases.

Make sure you fully understand the structure of the proposal and are comfortable with the terms and payments, and ask about prepayment penalties and whether your rate is fixed or variable.

If you've decided to shop for a new bank, you may want to move your entire business relationship to get better rates and fees. Ask the banker to provide proposals on all products you'll be using, including deposit accounts, cash management services, retirement plans, investment products and personal accounts. Make sure the bank you select offers products that will meet your business needs as the company grows.

The loan application process shouldn't be long. Once you've provided all necessary information, expect an answer in one to two days. Don't be afraid to negotiate the rates and terms of the proposal.

Having access to cash flow is essential for your business to expand and thrive. Together with your banker as your business partner, you can fulfill its responsibilities and make the most of new opportunities. Jane Bittcher is vice president, business development group, Fifth Third Bank. Reach her at (614) 233-4562 or