Successful small businesses owners occasionally need additional working capital. The company is stable and profitable, but the cash flow is unable to support a large expenditure for growth (i.e. additional square footage, new employees, needed equipment, adding a product line). In these situations traditional banks are still the provider of choice for most small companies.
However, due to new regulations resulting from the Great Recession, owners are finding it difficult to get the money they need. Even if they’re veterans of the old system and were able to secure financing in the past, they’re finding the old rules don’t apply anymore and are having trouble getting financing now. And rookies are quickly becoming confused and frustrated by the loan process.
So, what do you do? Planning, patience and follow through are the keys to getting an expansion loan — three things that most small business owners are not very good at. But, the banks have the money you need and you have to follow their rules to get it. Here are 3 things to do that will help.
Do the planning – Before you fill out the paperwork and submit it to the bank you must to do your homework. Talk to someone at the bank and get an idea of what’s required for a successful loan application. Do you have a good credit score and a large enough customer base? Do you know what your debt-to-income ratio is?
In the loan process your good intentions don’t count — banks aren’t interested in your open-ended visions and imprecise ideas. This is strictly a tangible numbers game. They’re interested in how the changes you’re proposing are going to create a profit, which will repay them with interest.
Have patience – Based on the planning you’ve done you now know what’s required to submit a successful loan application. However, after the planning stage you may be unable to submit it right away. You might need to pay down some debt, increase your credit score, clean up your existing credit line, or implement a new sales strategy.
Patience, time and sticking to a comprehensive plan is often the intermediate step for many businesses. They find that their financial house has to be put in order before they can successfully get a loan.
Follow their procedures – It’s baffling to lawyers, accountants and bankers how often small business owners are their own worst enemies. They consistently make the loan process much more difficult than it needs to be and sabotage themselves.
The average owner started their business so they could do things their way and not have someone else tell them what to do. Unfortunately, this doesn’t work with banks. It’s simple, but not easy, to learn to speak the bank’s language, find out what they want and give it to them.
Many successful businesses have failed because of poorly conceptualized and implemented expansions; experienced business bankers have seen it too many times. Although, at times, it may not seem like it, responsible owners and bankers want the same thing. They both want a successful, profitable business, which will strengthen the community.
