When I talk to people who want to get loans these days, they often sound defeated before they start. The media are full of negative stories about bank and SBA lending being down. But local banks seem to be faring well. The Treasury Department announced recently that 39 local banks around the country were selected as part of its TARP program (Troubled Asset Release Program).
Smaller local banks have traditionally been thought of as having tighter credit restrictions for business loans, and this has worked in their favor during these past few months, because their loan default rates are lower (only about 1.9% of small bank loans were in default as of September 30, versus 2.4% in default at larger banks, according to the Federal Deposit Insurance Corporation).
Tighter credit restrictions haven't kept local banks from loaning, though. They just want to make sure the business owner knows his or her numbers and has a sound business plan. I've always encouraged new graduates of professional schools to talk to a local bank, because these bankers also live and work in the community, and they want to encourage good businesses for community growth and development.
To get a loan from a local bank, do your homework and come prepared. Here are the top 5 "must have" items to win over that banker:
- Credit rating. A great credit score is a must today. It must be over 700 at least, and over 750 is better. If your credit doesn't meet these criteria, any bank will have a tough time giving you money.
- Business plan.A detailed business plan showing that you understand the market and that you know how to get and keep customers.
- Realistic financials. Don't be over-optimistic; a bank just won't buy it. Be conservative; over-estimate expenses and under-estimate income.
- Cash flow. A start-up will have a hard time showing cash flow, but it can be done. If you are looking for money for an existing business, come prepared to show your track record of cash flow and how you will sustain and build your cash flow using this loan.
- Experience. Include your resume and detail your experience. A bank feels much more comfortable with an experienced business person at the helm. If you don't have experience, get a couple of good people on your board.
While it's difficult to get a business loan in the best of times, it's well nigh impossible these days. But it can be done if you take your well-prepared plans to a local bank.