Borrowing: A Guide to Getting a Loan

for your Business

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Robert Bahn, Business Consultant Certified Business Advisor Arkansas Small Business and Technology Development

Center Arkansas State University College of Business

Arkansas State University Small Business and Technology Development Center•Training• Classes for new ventures and existing

businesses• Special Conferences

•Consulting• One-on-one advisory services

•Research• Sample business plans/Industry start-up guides

Market Research • E-news service: Biz Bytes & Tech Track

In your packets• Event Attendance Record Form• Evaluation form• Copy of slide presentation• Training At a Glance • SBA Resource Guide• Sample Loan Application• Loan Review Form• To the Point • Loan Synopsis • Flyer titled “About the ASBTDC”

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Agenda

How can my banker help my businessPrepare a Business PlanThe Loan ProposalPresentation to the Loan OfficerWhat happens after the loan presentationFinding a loan officerBorrowing Habits after the loan has closedQuestions

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Can my banker help my business?

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How can my banker help my business?

• Business Checking Plan• Investment Alternatives• Cash Management Services• Pension & Profit Sharing Plans• Loans

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Loans

• Line of Credit• Accounts Receivable Financing• Inventory Financing• Fixtures Financing• Equipment Financing• Real Estate Loans• Construction Loans

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Loans

• Letters of Credit•Working Capital•Equipment Leasing• Loans guaranteed by the SBA

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How do I apply for a business loan?

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It all starts with

Prepare a Business Plan

A complete business plan will….

• Exhibit that the business venture is feasible and profitable. It will show how the loan will be repaid.

• Chart a growth pattern for your business.

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A complete business plan will….

• Provide a useful checklist for implementation.

• Serve as a communication tool.

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• Executive Summary• What is the product/service?• Who owns the business?• What is the organizational structure?• Who is the typical customer?• Where is the target market?• How do you plan to reach the target market of

potential customers?

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A business plan should address:

• Where is the business located? • Who is responsible for management & operations?• Who are the suppliers and distributors?• What is unique about the business?• What customer needs will you meet?• What is going on within your industry?• What trends or issues do you need to be aware of?

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...and these questions too:

....and this one for sure!!!

• Financial Strength of Business & Owners• Balance Sheets & Income Statements (3 previous years)• Federal Tax Returns (Business) (3 previous years)• Projected Cash Flow Statement• Projected Income Statement• Personal Financial Statement with Income Verification (3 years personal tax

returns)• Use of funds and list of collateral to secure loan• Your startup budget. Price quotes and description of equipment (large) to

be purchased. A picture would be helpful.

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The Loan ProposalPresentation

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ABC Company

The Loan ProposalPresentation Tips

• Make an appointment first, allocate 30 minutes to an hour.• Be on time.• Dress appropriately.• Be honest and direct.• Listen.• Be positive and confident.

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The Loan ProposalPresentation Tips

• Take notes.• Know your business’s strengths and weaknesses.• Know your personal and business financial statements.• Know your listener!• Be prepared to describe your typical customer and your target

market.• Be prepared to explain how you came up with your projections.

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The Loan ProposalPresentation To Banker

1. Introduce yourself and briefly tell the officer about your request and your business.

- Purpose of the loan (be specific as possible) - Desired repayment terms (that will benefit you) - Available collateral with values

2. Be ready to answer these other questions: Where do you bank now? Have you borrowed from us before? What is your most recent credit score? Has your present bank seen this request? When do you need the money? 19

The Loan ProposalPresentation continued...

3. After the opening remarks, ask the loan officer if there is any additional information they might need?

4. Leave the Loan Proposal and Business Plan with the loan officer.

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Be sure your proposal covers the following items:Summary of needCompany summaryManagement summaryProducts and or Services to be providedMarketing• Discussion about Competition• Loan Synopsis• Sources and uses of funds

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• Projected Income statement (2-3 years)• Projected cash flow statement (2-3 years)• Projected Balance Sheet (2-3 years)• Projected Debt Coverage Ratio (2-3 years)• Breakeven analysis• Market and Industry Report• List of competitors in your target market

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The Loan ProposalPresentation continued...

5. Ask the officer to call with additional questions or if additional information is needed.

Point out where you have written your phone number. It should be on the front of the proposal.

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The Loan ProposalPresentation continued...

6. Ask when you might expect to hear back from the officer.

7. Thank the lender for their time!

8. Leave - Do not overstay your welcome!

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The Loan ProposalLoan Processing Initial Interview (you just did this!)

Presentation of Loan Proposal and Business Plan

When You Leave:

Credit Investigation Credit Report, D & B, References

Financial Investigation Ratio analysis, funds flow analysis, trend analysis, projections

Loan Decision Officer Authority, Committees, SBA

Closing (if Approved) Documents – surveys, appraisals, deeds, etc. Loan terms & conditions

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The Loan Officer

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The Loan OfficerThought Process

What is the purpose of the loan? Start-Up? Expansion? Equipment? Does the purpose match the requested terms?

Does the request fit bank policy? Loan to Value (LTV) Real Estate in a start-up allowed? Liquor store? Borrower financial strength? Equity injection available?

How much is the loan request?

What type of loan is it? Equipment financing? Real Estate purchase? Construction? Working Capital, A/R financing?

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The Loan OfficerThought Process continued...

• What is the nature of the loan?

• What are the different sources of repayment?

• Who needs to approve the loan?

• What about the Five C’s of Credit?

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The Loan OfficerFive C’s of Credit

• Character• Willingness to pay?• Management experience and capability?• Payment History?• Owner’s character?

• Capacity• Management’s ability to generate cash to service debts. Other funds

available to service debt during startup or difficult times.

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The Loan OfficerFive C’s of Credit continued...

• Collateral• Type?• Liquidity? Marketability?• Resale value?• Shores up other weaknesses

• Capital• Total funds available to operate the business?• Owner’s investment? Will the borrower have “skin in the game” Will the

borrower be willing to be “all in”.

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The Loan OfficerFive C’s of Credit continued...

• Condition• Current and future status of industry?• Current and future status of the national, state and local economies?

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Finding a Loan Officer

• Talk to your friends for a reference.• Talk to your fellow business associates for a reference.• Ask the non-lending personnel at your present bank for a reference.• Talk to the banker that made you your last loan.• Talk to a loan officer at the bank where you have your accounts now.

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What to look for in a Loan Officer

• Someone who:• Has an understanding of your business.• Shows an interest in your business.• Is honest and upfront.• Is willing to offer alternatives or suggestions.• Has the guts to say…NO!

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Do’s and Don’tsof Borrowing Money

• DO:• Make an appointment.• Allocate enough time to talk.• Tell about the Good, Bad and the Ugly.• Be prepared.• Listen to the Loan Officer.• Know your listener.• Take notes.

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Do’s and Don’ts of Borrowing Money

• DO:• Rehearse your presentation.• Keep your loan officer informed.• Ask questions, if you don’t understand what the loan officer has said.• Be reasonable.

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Do’s and Don’ts of Borrowing Money

• Don’t:• Make promises you can’t keep.• Ask “How much money can I borrow?”• Spend the money before you get it.• Negotiate over the phone.• Ever surprise your loan officer.• Be impatient.• Have only one banking relationship.• Make a decision on interest rate alone!

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Successful Borrowing Habits

• Plan Ahead• Lay the groundwork for the loan.• Investigate what is needed.• Make sure your plan includes required information.• Know the expectations of loan officer and the bank.

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Successful Borrowing Habits After the Loan Has Closed

• Communicate with Your Loan Officer• Notify the officer of any changes in the following:

• Financial condition• Location of facilities• Key personnel• Building add-ons• Product lines or services• Key advisors (insurance agent, attorney, accountant)

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Successful Borrowing Habits After the loan has closed

• Communicate with Your LoanOfficer• Deliver fiscal year-end business financial statement within 90

days of the year-end. Don’t wait to be asked to provide. Taking your loan officer updated financial information before you are asked is one surprise loan officers like.• Deliver interim business statements to the loan officer on a

regular basis (monthly or quarterly).• Deliver updated personal financial statement with income

verification annually.

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Successful Borrowing Habits after the loan has closed

• Pay on Time

• If you can not make your payment on time be sure and inform your loan officer and see if there is anything that can be done to keep the loan from showing up late. Do this in plenty of time before you are late. There are things a loan officer can do to help if they know about it in plenty of time.

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Questions?

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Thank You

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ASU SBTDC Website http://www.astate.edu/a/sbtdcFacebook: http://www.facebook.com/asu.sbtdcTwitter: http://www.twitter.com/asbtdc_asuEmail: asusbtdc@astate.eduCall: (870) 972-3517