Getting A Business Loan -- Part One

Do you know how a banker makes a decision to loan (or not loan) you money for your business? If your answer is no, don't ask a bank for a business loan right now, because you are not ready. You've got some homework to do.

But don't worry; it's not that complicated. You might already know more than you think, because getting a bank loan is not unlike one of the first things you learn in selling: how to qualify the prospect. Here are some qualifying steps:

• Who is the decision maker?
  
• What do they need?


• How do they want it delivered?


• What motivates them?


• How motivated are they?


• What do you have to do to make the sale?

With some slight variations, you should qualify any bank that is considering your loan proposal the way you qualify a prospective customer. And just like in selling, part of the bank qualifying process is to do your homework. Here's how this works with banks:

Who is the decision maker?
You have the right to ask who is going to make the decision on your loan. Every loan officer has his or her own lending limit, and who makes the decision on your loan will largely depend on how much you are asking for. The lending limit for a junior loan officer might be $1,000, whereas a more senior officer might have a limit of several hundred thousand dollars.

Sometime during your conversations try to determine your loan officer's limit and how many layers above him or her your decision will be made. You might be able to get this information by just paying attention. If not, ask.

Why do you care who's involved in your decision? Your goal is to get the loan. The more people involved in the process increases the scrutiny of you, your company, and your deal. More scrutiny means more questions. More questions means more time from proposal to answer (notice I didn't say approval).

What's your justification for asking about the bank's process? So you will know:

1) How many proposal packages to prepare;
2) How long an answer is likely to take;
3) How prepared you should be for new questions that your loan officer did not ask;
4) How important it is to take your proposal to more than one bank.

Here are some rules of thumb for point number two, how long it will take to get an answer: Your loan officer making the decision -- 1 to 3 days; Your loan officer and his or her manager --maybe an extra day or two; the local loan committee -- one to three weeks (they may not meet every week); an out of town committee, as in a larger regional or national bank -- 2 to 6 weeks.

Point number four -- should you go to more than one bank -- is very important. Unless you believe your request is a slam dunk (like if you know the loan officer VERY well and you know you have a conservative proposal), you should always take your loan to more than one bank. I strongly recommend you take it to at least one independent community bank, where all decisions are made locally, as well as to at least one larger bank. Nothing wrong with going to three banks.

Make your proposals to the different banks within a day or two of each other. If you get turned down at one, you not only have a back-up, but you don't have to say anything about being turned down because you made the request at the second bank before you were turned down at the first. If you get approval at more than one bank, that's a high-class problem.

Don't mention the fact that you're shopping around, but don't deny it if asked. Most bankers know they're in a competitive environment, so they assume you're looking down the street.

In most cases, do business with the bank that offers the best interest rate, terms, and least collateral. But if the bank that's been your friend when your own banking picture wasn't so rosy doesn't have the best deal, give them credit for their past loyalty. When you quantify how much that past loyalty was worth, you might decide to pay a little more, and "dance with the one that brung you."

What do they need?
Will your banker need a copy of your business plan? That depends on the size of your request, and what you are going to use the money for.

If the loan is to buy out a competitor, yes. If it's to buy some equipment that can be used as collateral, probably not. If you're buying real estate, you will need a current appraisal.

Your banker will need financial statements, but depending on your request, they might accept last year's numbers. But they could ask for the most recent year-end statements PLUS interim numbers. The reason you need to know what a banker needs before you go in is to make sure you have as much information as you can when you ask for the loan. Don't give them more than they ask for, or before they ask for it. But the quicker you can give them what they want, the better you look.

Remember this: The level of sophistication of your request begets a corresponding level of banking sophistication. As a request goes up in sophistication and complexity, your banker will dial in the corresponding resources on their end. But they will also anticipate, and expect, that you will have the sophistication personally and corporately to make such a request. If they don't see the appropriate level of sophistication, you will not get the loan. Do your homework.

How do they want it delivered?
Ask your banker how he or she would like to see your information and proposal: Verbally, in writing, in a Power Point presentation? Find out how they want it and give it to them -- as soon as possible.

Write this on a rock...Think of the banker you're asking for a loan like you do your customers. They have the information you need in their heads. Conduct the qualifying process that will get that information, and use it to your advantage.

Next week: What motivates a banker and how to use that information.