Following these Five Steps can Increase your Chances of Finding a Loan for your Business
Whether you’re looking for a loan that will help you secure a mortgage or create a cushion for unexpected expenses, taking out a loan for your small business can feel like a big undertaking.
Having insight into the process before starting can make it a much simpler process.
As a business banking specialist for U.S. Bank serving the Portland area, I specialize in lending, with a focus on helping small-business owners determine and then secure the best type of loan for their needs. Below are five strategies our business bankers typically suggest for making the process as effective and seamless as possible.
1. Ask About Lending Options
Small businesses, even those that are quite new, have a variety of lending options available to them. This includes applying for a regular business loan, which operates as a consumer loan but is used for business expenses. It can be a good fit for companies looking to purchase physical assets, such as equipment or office supplies.
For short-term borrowing needs —meaning you have a plan to repay the amount within 12 months or less — we often recommend applying for a line of credit. A major benefit is that it’s open-ended. You can open a line of credit for your business, pay the balance down to zero, and then reuse the funds again, keeping the cycle going as long as the account remains in the draw period.
Applying for a business credit card can be a good option for making smaller purchases, such as travel and everyday expenses. Credit cards serve a purpose even though the interest rates may be higher than those for a loan or a credit line. If a business doesn’t have a credit history, traditional bank financing may be out of reach. In certain cases, we recommend that owners apply for personal loans and transition to business loans once the company has established itself.
2. Have A Repayment Plan
Choosing the right type of loan for your business depends largely on what you plan to spend the money on, when you anticipate you’ll be able to pay it back, and whether the expense is recurring or a one-time purchase.
We often recommend taking out multiple forms of loans to meet specific needs, such as taking out a long-term real estate loan to rent office space and opening a line of credit to handle recurring expenses.
3. Gather The Necessary Information
To approve a loan, your banker will need your business’ tax returns —potentially going a few years back, depending on the size of the request. Your banker will also want to see financial documents that ensure your finances match the returns.
Be prepared to share your personal financial documents, including personal tax returns and financial statements. The bank will be on the lookout for any debts owners have that could have a bearing on the business loan itself.
Despite popular belief, securing a loan does not require perfect credit. There’s a big range. Yes, good credit is preferable, but there might be mitigating factors that a bank looks at and says, “We still want to get this business the money it needs to grow.”
4. Consider Applying Before You Need The Money
We often hear from owners who haven’t considered taking out a loan because things are going well. However, it’s in a business’ best interest to apply for a loan proactively when momentum is trending upward. Not only will the application process be easier, but it provides a financial buffer should your business hit unforeseen difficulties. Waiting to apply until those circumstances occur can make it more difficult to secure a loan when you need one the most. When things are going well, that’s really the time to apply for a line of credit.
5. Consider Applying Before You Need The Money
Working closely with your banker ensures you have someone who understands your business and its financial situation well. Think of your banker as a business partner or valued adviser, and let them know what is happening regularly. A good banker will ensure lines of communication remain open. Make sure you stay in touch with your banker so that when you are ready to start a loan application, there isn’t a lot of catch-up that has to happen.
At a minimum, our clients hear from us every three months. If they’re going through a transitional period and need more frequent contact, we urge them to let us know. We are there to help. At the end of the day, having a good relationship with your banker is going to make it a lot easier to go out there and acquire credit from the bank.
Becky Alderin is a business banking specialist with U.S. Bank serving the Portland area.
She can be reached at 971-337-7854.
U.S. Bank is an Equal Housing lender. Mortgage, Home Equity and credit products are offered by U.S. Bank National Association and subject to credit approval. Not all loan programs are available in all states for all loan amounts. Deposit products are offered by U.S. Bank National Association. Member FDIC. Contents of this article were originally published on usbank.com/financialiq.