No matter what business you are in, there are times when borrowing money makes financial sense. Oftentimes, extra capital is needed to allow your company to grow. Trying to finance growth internally can often present challenges for many businesses, especially when up front investments are required and if proper capital structure and working capital support are not in place.
Smart Business spoke to Jim Terrell and Donna Mittendorf of Comerica Bank about how to successfully secure a business loan.
When should I begin?
Terrell: Don’t procrastinate when it comes to your business finances. Start the process early in anticipation of potential needs for adjustments. A solid banking relationship begins with getting to know the ‘soft side’ of things. Relationships built upon mutual trust and commitment are usually longer lasting and more fruitful than ones built upon a quick, transactional approach.
How do I find the right commercial banking officer?
Mittendorf: Commercial banking officers are in business to help your business succeed. They will help you grow your business, improve cash flow and avoid ‘roadblocks’ that may negatively impact your business. To find a commercial banking officer that best fits your needs, ask fellow business owners for recommendations. Interview several commercial banking officers until you find one who will work hard to understand your business and is motivated to help you succeed. It is essential you find a banker you trust since you are investing substantial amounts of time into building a long-term partnership.
What should I provide my banker?
Terrell: The first step in the loan process is to provide your banker with a comprehensive overview, or business plan, of your company. This plan is critical to the banker’s understanding of you and your business. It should include a description of your product or service offerings, names and background of key management, a market/competition overview and an outlook for the industry/market. Make sure your business plan doesn’t just factor in the positives but addresses any challenges your business might face and how you plan to address them so your banker can see the whole picture.
Do I need to provide my company’s financial information?
Mittendorf: Yes, financial statements are oftentimes referred to as ‘banker’s blueprints.’ They provide the lender with a clear view of the company’s past, present and future. Financial statements should include a balance sheet, income statement and any footnotes necessary to provide the reader with a clear understanding of the company’s financial condition. Businesses should be prepared to provide three to five year-end financial statements along with the most recent interim statement. A forecast of how your company will be affected financially if you are considering expansion is important as well.
Will I be asked for personal financial information?
Terrell: Most likely yes, because personal finances of business owners and their company are so closely related. To satisfy this requirement you can provide a personal financial statement, which usually consists of a balance sheet detailing assets (property values, securities held, etc.), liabilities, a breakdown of total personal income (salary, investments, etc.) and details of any minority or majority ownership in joint ventures, LPs, LLCs, etc. You also may be asked to provide personal tax returns and, because commercial banks see personal credit as a strong reflection of how the finances of the business are handled, a credit score over 700 is preferred.
Is there anything else I should include?
Mittendorf: Make sure to explain how the loan proceeds will be used. It is useful to have a detailed explanation of the purpose of the loan. If borrowing funds to purchase machinery or equipment, show a contract outlining the purchase and delivery price. If applying for real estate construction funds, pertinent details from the architect, contractor and/or construction manager will be required.
Jim Terrell and Donna Mittendorf are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and is strategically aligned by three business segments: The Business Bank, The Retail Bank and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $53.7 billion at Dec. 31, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.