Tag Archives: SBA Loans

A Guide to Applying for a Bank Loan

A Guide To Applying For A Bank Loan

Every business at some point will require outside financing; his generally means obtaining some form of bank loan. For many, this turns out to be a very aggravating and frustrating process. You may be financing a new business or simply be in need of seasonal financing, but proper planning will substantially enhance your chances of obtaining a bank loan. Additionally, you’ll learn more about your business through this process.

Various methods of outside financing include venture capital, an outside investor or bank financing (the most common method). Many banks offer both conventional and SBA loans. Talk with your banker to see which type of loan makes more sense for your particular situation.

Preparing the Loan Package

There are five components to preparing a loan package. I’ve broken the sections down below. Remember to customize each to your specific situation.

1. Financial Data

Usually two to three years of internal financial statements will be required as well as three years of projections on the balance sheet, income statement and cash flow statement. Other financial data may include prior year’s tax returns, financial ratios, information of historic growth rates, etc. Include any other information that will convince the banker of the fiscal soundness of your business. If your financial performance has been poor, emphasize the positive aspects of the business such as improved gross margins, increases in cash flows or key financial ratios.

Businesses that are start-ups will not have prior financial data. In these situations, projections and budgets are critical. These budgets and projections should be supported by factual information to support the fact that goals are creditable and not just “pie in the sky” wishes.

2. Industry Data

Including knowledge of pertinent financial ratios and industry statistics will further convince your banker of your creditability. Be sure to point out areas where you exceed the industry’s performance in a particular area. Sources for this type of information are trade associations and Internet resources. One such Internet source is First Research.

3. Ownership Information and Resumes

This information is important no matter whether you are starting a new business or trying to obtain funding for an existing business. Information about you and other principal stakeholders in the business regarding background, education, experience and capabilities is vital.

4. Financing Plan

In a well-written narrative format, explain the reasons for the financing request and the amount and repayment terms of the request. Identify the use of the loan proceeds. All of your loan package, including this section, should be tied together into a concise, financing plan.

Other information may be needed to substantiate your loan request. When requesting financing for a new business, always include information on marketing, management plans, industry background and predictions, and pro forma financial information.

If a working capital loan or line of credit is requested, you should provide information on how much funding will be needed during slow periods and how it will be repaid during peaks.

One important rule to remember is not to hide unfavorable information. A particular area where this comes into play is the strengths and weaknesses of the company. Such information should be fully disclosed, including how you plan to overcome the problem. Full disclosure will add to your professionalism, while the failure to disclose will undermine your creditability.

5. Secure a Second Opinion

Last, but certainly not least, is to have someone else look over your loan package; this includes a financial advisor or CPA. This person can offer an objective analysis of your efforts, point out shortcomings and make suggestions for improvements.

Do your homework before applying for a loan. Know your business, know your industry and know the answers to questions before they are asked. Having this information will greatly enhance the probability that you will be successful in obtaining your loan.

For more information about applying for a bank loan, visit B2BCFO.com.

Big money tight times 2008

Big Money, Tight Times-SBA Loans Can Help

By Don Weiner

It may be true that numbers don’t lie, but they don’t always tell the whole story. When the 2008 fiscal third quarter ended June 30, statewide Small Business Administration-guaranteed lending showed a 25 percent decline from 2007 in both total loans and dollars lent, according to the Arizona District Office.

big money 2008

In fact, District Director Robert Blaney says numbers have been dropping throughout the fiscal year, which is indicative of a slowing economy and business owners holding back.

“I think that we’re feeling the effects like everybody else,” he says. Even active SBA lenders have noticed a slowdown.

“The customers are not expanding as much,” says Dee Burton, an Alliance Bank of Arizona senior vice president dealing with SBA and commercial lending. “The customers are, you know, a little bit leery and they’re not expanding their business. So, yes, that has impacted the number of requests that we get to look at, simply because most of the customers are not in high-growth mode.”

Yet a closer look at the SBA’s third-quarter numbers shows some positive trends. Veteran lending jumped almost 70 percent. Rural lending dollar totals were up 93 percent. And loans for start-ups increased 147 percent.

“When the angels cry, sometimes they also sing,” Blaney says.

The upshot for small-business owners is that if they need money and can meet certain requirements, financial help is available.

“Here at Alliance Bank, we look at these type of slowdowns, if you will, as an opportunity to help people get a loan to expand and grow with them,” Burton says. “We’re definitely still in the lending process.”

Thankfully, business owners have no better friend than the SBA. It provides resources for those starting new businesses or expanding existing ones. And it has programs for businesses in need of capital.

When it comes to the financial side, it’s important to be clear: The SBA is not a lender. Instead, it works with banks, credit unions or other entities that make and administer loans. The SBA backs up loans with guarantees, which can run as high as 75 percent to 85 percent depending on the amount borrowed and the type of loan.

“For us, it’s a critical program,” says Lori Stelling, vice president and SBA lending manager for National Bank of Arizona. “We can serve so many more customers by givingthem a loan with an SBA guarantee, because the loans that we do under SBA we would not be able to do conventionally. And there’s a number of reasons for that. If somebody doesn’t quite meet our conventional cash-flow requirements, under SBA we can give them a longer term than we can conventionally.”

“For lenders, I would say SBA is a critical part of what we do.”

The SBA has several different loan programs.

The most common is the 7(a) loan, which serves a range of business financing needs with a maximum amount of $2 million. Another is the SBAExpress program. It makes smaller loans available, but the SBA only offers a 50 percent guarantee. One of the newest is the Patriot Express Initiative, a program that helps veterans and others in the military community with funding and training. Established businesses in need of long-term financing for major fixed assets can turn to the 504 program.

Not all active SBA lenders participate in all programs. Some specialize in 7(a) loans; others offer SBAExpress loans as their primary product. They also have varying restrictions and minimum loan amounts. Many lenders refuse to offer loans for start-ups. Also, only certain active lenders are approved for certain programs, such as Patriot Express. And some are given special status. Especially active and expert lenders qualify for the Preferred Lenders Program, which equates to a quicker turnaround on SBA loan applications.

Visit the SBA’s Arizona District Web site at www.sba.gov/az to find a completelisting of statewide lenders.

The SBA loan process is not that complicated. Take your proposal to a lender and, according to Blaney, if the lender is unwilling to do a loan without an SBA guarantee, they will deal with the agency’s loan processing center.

“It’s as simple as that,” Blaney says. “You have to fill out a couple of more forms for us. I mean, it is the government, we do have a form or two. But it’s not an arduous process. And it has been severely streamlined over time.”

cover october 2008

Before taking that step, however, Arizona small-business owners may want to take advantage of two other SBA programs: SCORE and the Arizona Small Business Development Network. Their experts can assist with business plans and help you understand lender requirements.

John Alig, branch manager and a counselor for the East Valley SCORE chapter in Mesa, says this may mean passing out what a fellow counselor calls “reality cookies.”

“Sometimes that includes telling people things that they don’t want to hear,” Alig says.

He warns that business owners who lack a proper credit rating, collateral and capital do have one thing: a big problem.