You will never get your small business loan approved if you keep doing this
Your friends may be telling you that banks are not lending to small businesses. The reality is that many banks are stronger than they have ever been and want to lend. Then why are you still getting your loan request denied?
If you are doing any of these three things you will never get your loan approved.
1. You wait until you need the money
Let me guess you have been in business for several years and you have kept your deposits with the same bank since you earned your first dollar. You believe you are an exceptional client to the bank. You always pay your bills on time and have excellent credit. Things have started to slow down and annual revenues just are not what they used to be a year or two ago. So what do you do? You go to your bank to get a loan of course. Your loan officer looks you in the eye and says I am sorry, your loan has been denied. Now you are furious and want to pull all of your money out of the bank.
This entire scenario could have been avoided. You waited until things got bad to request a small business loan from your bank. That is a recipe for disaster. I understand, no one can predict the future so why would anyone borrow money when they are not sure they will need it?
The truth is the bank cannot predict the future either; therefore they use your previous performance to determine how you will perform in the future. This can be a challenge, because as an entrepreneur you are always looking forward. When applying for a loan you have to put things in reverse and consider how you have performed the last two to three years to know if you have a shot at getting your small business loan approved. You must strike while the iron is hot. When your business is experiencing peak performance, that should be the time you look to add borrowing capacity, such as a line of credit. Now you may never use it, but it is there if you do have a slow month or two.
2. You provide poor financial statements
The bank’s underwriters don’t trust you. They were hired to protect the banks depositors. All of them, not just you. That’s if you even keep any of your money at the bank you are requesting a small business loan from. The underwriters may not even like your loan officer. When you provide the loan officer with poor financial statements you might as well be arming them with a knife for a gunfight.
Financial statements are the report card you show to the bank to get a loan. They are often tax returns or an income statement and balance sheet. You are probably asking what are poor financial statements. I will tell you. Poor financial statements don’t make sense. They are often handwritten and hard to read or do not fit the format of generally accepted accounting principals.
If you are not familiar with what an income statement and balance sheet should look like ask for help. Consider taking an intro to accounting or QuickBooks training course at your community college, hire a bookkeeper or speak with your CPA. All of these people want to assist you in providing quality financial statements. It is okay to ask for help. Remember you are great at what you do for business, if you were an exceptional bookkeeper or accountant you may have made that your profession.
Providing quality financial statements is important. The next step is to know what they say. So read over them before you hand them to your loan officer. Odds are there will be questions, because they are not privileged to your day-to-day activities.
3. You bank at the wrong bank
Did you pick the your bank because it was the most convenient to your location? Was your bank recommended by a friend with a business in a different industry? Was the bank offering a free iPod or $100 for opening a new deposit account? There are several reasons you may have chosen to bank where you do. Remember all banks are not created equal. You may have been declined because you do your banking at the wrong bank. Many banks have a specific type of client they wish to work with and others they put on their high risk or restricted lists.
Larger national and regional banks tend to be more financially sound and secure, which often leads to better interest rates. They are also often more rigid, which is what has made them safe, but their lack of flexibility may keep you from getting the financing you need. Choosing to go with a community focused bank can often lead to more flexibility, but with that flexibility comes more risks. When your bank is a risk taker they often have to charge more in interest rates to make up for the loans that happen to go bad. Higher interest rates mean less income to your bottom line. So what do you need to know to pick the right bank?
When selecting a bank for your small business loan you should look for more than just great rates, proximity or gimmick promotions. You need to interview your bank and determine if it is the right fit for you. Ask what industries the bank specializes in. Do they have a list of clients that you can talk with about their banking experience? Find out what size businesses they work with. If you continue to grow your business will you eventually be pushed out of the bank or will they be able to grow with you? If you can find a bank that works with your industry, has great customer service and offers great rates, you have likely found a great fit.