Six tips to make your small business more attractive to SBA lenders
People seek SBA-guaranteed loans to start or buy a business, buyout a partner, get working capital, extend a loan or get a lower down payment on an asset purchase. Whatever your reason, here are six tips to help make your small business more attractive to SBA lenders.
1. Educate your banker
Most bankers are generalists and know a little about many industries. Be sure to educate them so they are able to articulate the history of the business, the ownership, the industry, the loan request, business operations, etc. Make the banker your advocate in this process so they can make the bank confident in loaning you the money.
2. Show your cash flow
Banks analyze your business’s ability to repay the debt that has been requested. If the business cannot repay the debt based on past financial statements, are there projections with underlying assumptions that show your ability to repay in the near future? Are they reasonable and factual? Banks need to know that you can pay them back, so show them your plan.
3. Provide financial documentation
If you provide requested financial documents quickly, you will gain the trust of your banker. If they have to ask again and again, it’s thought that you don’t keep good financial records, which is a lender turn-off. It is also important that the business owner can be completely articulate in what the financial statements report. Having immediate and precise answers to the banker’s questions will impress and provide a high level of confidence.
4. Communicate your business model
Another way to impress your banker is to be able to communicate your business model. Be ready to answer questions like, how do you operate, how do you collect cash and pay customers? What’s the typical timing of the operating cycle? How do you sell, and who do you sell to? Is there something atypical or proprietary in your operations? What are your short and long-term prospects?
5. Know how you will use the funds
Believe it or not, some businesses apply for credit and have no idea as to how they’re going to use the money. Do you need a line of credit for short term or is there a need for a longer term? How will it be used, payroll, inventory, lease payments? If the need is long term, what has to be paid immediately? Your banker may make suggestions, but if you can identify the use of funds initially, it will alleviate the concern while the request is reviewed.
6. Pull your personal credit
A bad personal credit score can sink any loan request. It is best to pull the personal credit score of all owners of the business and have it available for the banker’s initial review. Everyone should pull their own credit report annually to review for any inaccuracies or even fraud. If a business owner’s credit score needs help, it’s best to work through the issues before submitting a loan request to a bank. As in any job interview, a candidate has one good chance to make a positive impression. It is a similar case when applying for business credit. Attention to detail and consideration of the recommendations above can significantly improve the chances for a successful loan approval and the start of a long and mutually beneficial relationship with your banker.