So you have been making all of these small business growth strategies for your business and you finally found a bank. It’s a great bank, too! You like and trust the owner, it’s the right size for your company, and you have a good relationship going with the entire branch. This is a great first step (and if you have no idea how we knew it was your perfect bank, check out our post from yesterday on finding the right bank for your business), but now it’s time to use the bank. You need a loan, but what is required of you?
David Crary, our fearless leader, recently sat down with a few different bank experts to find out the different sorts of requirements needed to get a loan. He shared this information on HVACChannel.tv’s program “When to go to the Bank,” which you can view here. For the purpose of keeping things shorter and sweeter, we will only be discussing the three things required of you to receive business loans, but we do suggest you watch the program if you have some time. It’s chock full of good information. Okay, on to the loans!
- You must have a financial plan that will show how this loan will create revenue for you. Crary uses the example of needing a piece of equipment, so that is the one we will stick with. If you need a loan for a piece of equipment, you must show how the piece will generate revenue for you. Basically, you can’t ask for a loan for something that will not make you enough money to pay the bank back.
- You must know the “used” value of the loan. This is another way banks guarantee they are not completely SOL when it comes to giving out loans. You need to show that if you cannot pay back your loan, the bank can sell the piece of equipment you got the loan for and make an acceptable profit off of it.
- Provide a personal guarantee. You must provide information about your assets for you or your company to prove you have a good backing. This shows you are reliable. Having valuable enough assets provides the bank with a sense of comfort. They will be more willing to give you the loan if you can prove you are stable.
The main way to get a loan is to prove you are stable and trustworthy. Banks don’t want to invest in a loan they feel you cannot repay in full. While these three things do not automatically ensure you will get the loan, they are definite confidence boosters for the bank in showing you are capable of handling however large of a loan your small business may need.