There are a ton of lenders, including traditional banks and alternative lenders, that want to extend credit. But often, small businesses can become their own worst enemies when it comes to applying for loans. Here are some tips to increase your success in accessing debt capital.
Start your banker relationship early: It’s human nature to not seek out resources until you need them. However, relationships built early are always stronger. Seek out a relationship with a banker before you ever need one. While there are no secret bars where lenders hang out (or at least none that I can tell you about), you can attend networking events or get introductions from others in your network, such as your lawyer, accountant or other entrepreneurs and business owners. Also, you can build a banking relationship at your community bank level with other products. Create a banking relationship for checking accounts, credit cards and other banking products. Foster that relationship so that you have a foundation for when you need a loan.
Get your personal credit in order: As a small business owner, you are closely tied to the financial success of your business. That means that your own personal credit will be a factor in being able to secure a loan. Make sure to take care of your own debt and do things to increase your credit score before seeking bank capital for your business.
Be organized: One way to get what you want from a banker is to make their job easy for them. Help them help you to get access to capital by being thorough and organized in your interactions. Have your business plan and financial statements together before you meet. If they ask you for documents, send them all together in one email with a clear checklist or recap to show your own diligence. This may seem obvious, but many bankers emphasize the lack of organizational skills (or perception thereof) as a big deal breaker.
Know your numbers: While equity investors are compensated by the growth of your company and share in your upside, a bank or other lender is compensated by you paying back your loan with a small amount of interest. This means that they aren’t able to take the same types of risks as equity investors and are focused on your assets, your cash flow or both. Know what assets you can use as collateral or how much cash flow you generate each year to pay back the loan, as these are the key metrics of importance to a lender.
Use local resources: If you are overwhelmed and don’t know where to start with your process, or need help getting your business plan or financials in order, try local resources like SCORE and the SBA, who provide a treasure trove of resources for small business owners and aspiring entrepreneurs.