Small Business Loans: What Lenders Look For

Insight into the lending process from finance expert Bob Coleman

Insight into the lending process from finance expert Bob Coleman

By James Anderson

Last year, small businesses received more than $28 billion in funding through Small Business Administration loan programs. Imagine how an infusion of capital could expand your business!

If you’re thinking about entering the borrowing market, there is good news: Bob Coleman, a publisher of the Coleman Report, a daily e-newsletter that reaches 20,000 small business lenders, says there are concrete steps to take to tip the loan scales in your favor.

For those looking for a loan to take their small business to the next level, Coleman shares strategies that can boost your chances of getting approved.

How can entrepreneurs optimize their chances of getting a loan?

Let’s look at things small business owners can control. We all know lenders are taught to look at character, collateral, cash flow, capacity, and conditions. The economy may be putting constraints on the last four, but the most important of these—character—can help you overcome some of the issues bankers might have with the numbers.

How do business owners proactively build character?

For one, go local. Find where the bankers go and build your profile. Join the local Rotary Club. Get out, get public, and show your face in the community. Sponsor the Little League and get a banner put up in right field. Raising your profile is about not only establishing your personal brand but also showing that you are an upstanding citizen in your community and a superior small business operator to boot.

Great, what’s your next strategy?

Bankers do not need you to be an expert financial genius or an MBA. Showing that you are responsible and engaged goes beyond that. It’s knowing key balance sheet numbers, but more specifically metrics that are specific to your business. For hotel owners, that’s the occupancy rate. Florists might home in on how many dozen roses are sold on Valentine’s Day. A restaurateur might center on how many customers are seated for lunch at 11:45. The bottom line here is that you need to impress upon bankers that you have the intuitive metrics of your business on the tip of your tongue.

Are there other ways borrowers can make a strong impression through preparation?

Yes. Do little things to make the banker’s life easy. Have everything in order when you walk in, such as three years of tax returns, which were filed on time with no extensions. Have your financials and personal financial statement complete and ready. Write a one-page projection to summarize who you are, what your business is, and what ten things you are going to do in the next year. Prepare the narrative yourself so you know exactly what’s in the document—don’t hire a consultant.

Paperwork is important. That might include the last three months’ bank statements or a copy of an E-Trade account. Other examples could be a $50,000 contract you recently signed with NASA to make widgets or a Zillow printout for real estate you might use as collateral.

What type of timeframe should prospective borrowers think about in order to follow these steps?

Get a loan before you need it. If you’re a retailer and need inventory in the door for Christmas season, you start talking to bankers in February. If you’ve got zoning approval to expand your restaurant and want to fund construction, look to apply at least six months before breaking ground. The point is that lenders want to see you as a superb operator. Join the Elk’s Club and build your profile now. Work on your papers and your presentation so you’re in position to start applying well ahead of time.

Instead of focusing on how difficult it is to get a loan, small business owners should be energized by the fact that banks are in the business of lending money, Coleman adds. “Some of the best ways to improve your chances hinge on becoming more visible and knowing what bankers want to hear.”

James Anderson in an English professor for the City University of New York as well as a writer with over 25 years of experience in the fields of finance and business. 

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