The recession is over and entrepreneurs are looking for cash, but are banks willing to lend?
The answer is a resounding yes. Sheryl Cameron, senior business banker at Chase Business Banking says that last year her department loaned $17 billion to businesses with less than $20 million in revenue. This is up from $11 billion in 2010.
In community banking, Kevin Ellis is a little more cautiously enthusiastic. Ellis is vice president of small-business lending at Atlantic Coast Bank with locations in Florida and Georgia. He says the uptick started last year and things are improving slowly.
“There is money out there and we are doing a lot of deals, but it is still a pretty fragile market,” he says.
Bankers emphasize that borrowers need to present a solid picture of their business and themselves. Here's what they're looking for in potential lendees.
Come into a lending meeting with your accountant or lawyer in tow to immediately establish a degree of credibility. The presence of such professionals shows that you are serious and have done your homework, says Morgan Johns, senior vice president at Conestoga Bank in Pottstown, Pennsylvania.
If you don’t have professional backup or need help putting together your business plan, visit a local SCORE chapter where aid is free.
If you want to launch a hair salon but lack cosmetology experience, you may want to think twice before booking a lending appointment. Banks want to see that you’ve spent time in the industry you want to enter, says Jana Rouble, business-development officer for Fidelity Bank, a community bank with locations in Georgia and Florida.
Healthy Credit Score
Personal credit is more important than ever, says Ellis. Banks are not only taking a chance on your business, they are taking a chance on you, personally.
Even if you don’t have a credit score in the high 700s, you still may get a loan. A variety of alternative funding companies are eager to help.
Compound Profit of Arizona is one such company. Regional director Christy Giroux explains that she taps resources ranging from invoice and financing companies to credit card processing lenders to secure financing for small business owners.
Alternative financing companies like Compound Profit often use factoring to help offset costs, a process that trades accounts receivables (and a percentage of transactions) for quick cash advances to a budding small business.
Gone are the days when banks would lend to entrepreneurs whose entire livelihoods were riding on a business plan. Today, lenders want to know that you have a solid source of secondary income, notes Johns. Make sure to bring detailed financials for your second job, your spouse’s income, rental income, etc. This also extends to how much equity you can put down right off the bat.
“It depends on the project how much we require you to inject into the project at the outset,” says Cameron. “But we definitely want to know that you have some skin in the game.”
Number-Rich Business Plan
Bankers want to see a business plan with promise, but, according to Rouble, they are even more interested in the numbers.
“If they can’t sit down and tell me how many customers they need per day and how much money each customer needs to spend, I’m not interested,” she says.
Conestoga Bank is so serious about limiting loans to entrepreneurs with strong work ethics that it sends employees to visit businesses before releasing funds.
“We want to go out and kick the tires a bit,” says Johns. “I want to know that you have the right character to pay back a loan.”
What’s been your experience trying to get a loan lately? What advice can you give small business owners?