How To Obtain A Bank Loan

By Carol Tice

Every small business can use more money, but many are unprepared to build a relationship with lenders that can provide funding. There are several steps that every small business should take in order to improve the probability of receiving a bank loan.

Plan Ahead

It is never too early to get things in order in preparation for requesting a loan. Whether you are just starting up a small business, or are in the midst of phenomenal growth, there is always the chance that additional funding will be needed at some point.

The process of getting a bank loan can take anywhere from 30 to 90 days. By being prepared, you speed up the process and build relationships that can be tapped if the time comes when a loan is needed. Here are a few simple steps that can be taken to prepare for a loan request:

• Gather your paperwork - Compile recent tax returns, financial statements, and any other company records for a potential lender to review. Most banks will want to see at least three years of financial data, or all company records if the business has been in existence for less than three years. A bank might also request personal tax returns in case the loan needs collateral to back it up, so have those at the ready. Having all the materials that a lender might request at hand will get the relationship off on the right foot. The lender will see that you are prepared, and that you are in all likelihood a responsible business owner who will take a loan obligation seriously.


• Monitor your credit - One of the most important factors in getting a loan is having good credit. Find out your credit score immediately and make every effort to improve it so that banks have a strong reason to grant you a loan. Ideally, a credit account separate from that of the business owner should be in place.


• Have collateral ready - A bank would prefer to have an asset as collateral in the case of default on a potential loan. You may want to consider using accounts receivable as loan collateral. In this case, ensure collection of any overdue receivables so that they are current. Most banks will look at the quality and aging of your receivables.


• Avoid loan packaging - Loan packaging can be expensive and it may hurt your chance of securing a loan. Loan packagers send numerous applications that show up on credit reports, and this can create the appearance of a struggling business. Getting a bank loan isn't about volume of applications, It's about being prepared to find the right lending relationship.

Build A Partnership

Once you have these things in order, the final step is to choose your bank wisely and tell your story. Explain why giving your company a loan is in the bank's best interests and how you plan on working with the bank to ensure repayment.

Find a loan officer who you believe is willing to partner up; you want to show your passion for what your business does and explain how you differ from competitors. Getting a bank loan boils down to being prepared and building a lasting partnership with a lender.