By John Cirella
Senior Relationship Manager, Business Banking, ESL Federal Credit Union
Securing lending is an inevitable stage for a majority of small businesses, as it contributes to the growth of their companies, as well as to the general small business community.
Business owners are often working to secure this lending for exciting reasons that will fund the company’s growth: purchasing new equipment, inventory expansion, growth of staff—the list could go on.
If this sounds like your company, and you’re gearing up to seek financing from a lender, there are tips to keep in mind so you’re best prepared for the process.
1 - Plan for the future
Having a plan is a necessity. For startups, this means having a thorough business plan with accurate revenue estimates. For these companies, lending is most often used for day-to-day business expenses while the company gets off the ground.
Businesses need a detailed plan of action for the funds. Businesses—both new and seasoned—should present to the lender how much they believe they will need, why they need it, and how they intend to pay it back.
2 - Organization is key
Having your finances and reporting in order are key deliverables when it comes to the lending process. This includes tax returns, profit and loss statements, Schedule C if you’re a sole proprietor—essentially any financial reporting you have available, bring it with you to provide to the financial institutions. The more you can provide upfront, the smoother the process.
3 - History of success
The definition of “success” will differ among businesses and sectors. In order to secure lending, businesses need to have an historic track record that proves the lent funds will be well spent and managed. This can be more difficult for startups, as that history doesn’t necessarily exist. For startups, providing personal assets to help secure the loan will provide the lender with more comfort that the loan will be paid back. An example of personal assets the lender would look to secure would be cash or marketable securities or equity in real estate.
Additionally, having good personal credit is a must—especially for startups, as a business history doesn’t exist yet. For more established businesses, there is a business credit score lenders look at to determine how likely you are to repay loans. There are three credit bureaus that look at and score specifically to business credit: Dun & Bradstreet, Equifax, and Experian. Unlike a personal credit score, you have to pay to see your company’s business credit score, and all of the information is public. Anyone can look up the business credit score of companies as long as they pay for it.
4 - The sooner you talk with your financial institution, the better
This is important because they can serve as a guide. Securing lending can be a lengthy process, and working with your institution before making the ask and filling out an application can help remove any surprises. The more well-informed you are, the better organized and prepared you’ll be when beginning the process.
5 - Rely on your partners and resources
For small businesses, your accountant can be your best friend. Having a professional you can rely on for financial management, projections, and tax updates is essential to keeping your finances in order. There are also community resources you can rely on to assist with questions that may come up related to financial management for your small business. SCORE of Greater Rochester, Pathstone Enterprise Center, Inc., and Consumer Credit Counseling Services of Rochester are three excellent institutions who do a great deal to serve the small business community.
Applying for business lending can seem like a cumbersome and daunting task, but it doesn’t have to be. By keeping these five tips in mind, you will be well prepared to go through the application process with your financial institution.
