How Do I Get My Business Loan Approved?

As a business intermediary, I transact business sales, purchases and financing. I am finding that even with SBA guarantees on business acquisitions, the banks want 1:1 collateral coverage even though the SBA guarantee is supposed to eliminate that requirement.

Typically, bankers look at the following items to make a determination of whether your loan will be approved:

  • Good credit rating for both the company and its owner. (Good is a subjective term and each banker makes a decision as to whether your score is "good enough" for them).
  • A debt-coverage ratio of 1.25.
  • At least two years in business
  • A history of profitability
  • Management/industry experience
  • Collateral for loan - type, value, condition
  • Secondary source of repayment - (i.e. do you have outside income? Do you have other assets such as securities, cash, real estate?)
  • Current economic climate and how your industry is affected
  • Character - do you have references? Have you worked in this industry for a long time? Have you managed your business well? Do you run personal expenses through your business and fail to show a profit? Are you honest? Do your customers like you?

Making a commercial loan is an art and a science. These guidelines are in place to assist a loan officer in making a decision. However, a loan officer's "gut feeling" about a borrower is just as important as the other listed items.

If the loan officer doesn't "feel good" about you, she will look for another reason to turn the deal down. And "no" this feeling doesn't have to be quantified.

My suggestion when meeting with bankers and applying for a loan is this:

  1. Behave professionally.
  2. Be prepared.
  3. Have all the required paperwork.
  4. Don't ask: "how much can I get?".
  5. Know beforehand what you want.
  6. Describe the terms you'd like in a friendly yet business-like manner.
  7. Answer the question that is asked of you (and nothing more!)
  8. Don't whine.

If you get a turndown, ask the banker what kind of terms/conditions under which she would make the loan. If the banker says, there is no way you'll get the loan, then consider that this particular bank may be under regulatory scrutiny.

If a banker likes you, and you meet most of the criteria, a good banker should give you some options of how he WOULD do the deal. If he turns you down flat, it may be about you OR it may be about this particular bank.

Bankers aren't going to tell you that the regulators have been there and put them under a "cease and desist" order. You'll have to do your own homework to find out which banks are healthy. A good resource for this is: http://banktracker.investigativereportingworkshop.org/


Bankers are very nervous right now and the loan criteria is a "moving target" depending upon the mood of the approval officer. And remember the banker you meet in person is, in most cases, NOT the final decision maker.

The person you meet will be your advocate if they like you and the deal. However, they also have to be able to "sell" the deal to the final decision-maker.

The larger the bank, the more layers there are between the person that takes your application and the decision maker.

I suggest that you go to a community bank with local decision making authority. Stay away from the large banks because the front line person generally isn't experienced and won't have any "pull" with the decision-makers.

If you are having a challenge with getting financing and you want a second opinion, give me a call or send an email. Good luck!

Comments

Anonymous said…
That was a great post and this is a great site. My interest is in business loans
December 2, 2009 at 6:29 AM
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