If you're looking to secure commercial loans for your small business, there are several courses of action you can take to improve your chances.
In a recent post for SCORE Small Business Blog, Anita Campbell of Small Business Trends noted that the optimum time to lay the foundation for getting a loan is before your company actually needs one.
Although this rule of thumb may seem counterintuitive, it rings especially true in less prosperous economic times when competition for loans is fierce and virtually every community bank and larger lender is inundated with requests for funding.
Campbell laid out three steps that can help maximize your likelihood of securing the loan you need to make your business grow.
The first involves ensuring your financial statement and financial plan are in order – a pretty elementary step, but an important one. After all, you can't expect a lender to look upon you favorably if you don't have up-to-date information about the profits, losses and other aspects of your company. If that sounds like you, there's no time like the present to rectify your situation. As Campbell notes, "If there are delays in providing such essential information it may make you look like you are disorganized – and then what does that say about your ability to repay a loan?"
Second, although you may believe your current credit report and credit score are out of your control, that's not actually the case. Often, there are loose ends that can be tied up, such as making sure closed accounts don't still show open balances. You can also pay down credit cards on other accounts. Additionally, double-check that your company even has a business credit record, as an astonishing number of startups do not. If you don't, open an account for your enterprise as soon as possible, so that when it comes time to apply for a loan, your business credit is already firmly established.
Third, visit your community bank or other lending institution that specializes in serving small businesses. As Fox Business reported earlier this year, small business loan volume at community banks rose by $17 billion between 2007 and June 2011, hitting a total of $302 billion. In contrast, larger financial institutions (FIs) have dramatically cut their small business funding since the recession.
In fact, according to Ami Kassar of Pennsylvania-based small business lending consulting firm MultiFunding, community banks would be the better port of call even if large FIs hadn't constricted their lending. This is because their less rigid processes actually make them better equipped to handle small business funding, and they have on-site loan officers who make themselves available to assist with applications and answer entrepreneurs' questions.
"With a smaller local institution, you'll have a better chance of communicating directly with loan decision makers," Campbell echoes. She recommends getting to know a loan officer at your local bank and taking the time to educate him or her about your business – slipping in, of course, relevant successes such as awards, accolades and other tidbits that reflect positively on your company.
"You wouldn’t try to make a big sale without taking some time to be persuasive and sell the benefits of your product or service," she writes. "The same concept applies when asking for a loan – you have to 'sell' yourself, your business and your combined credibility."