Banks are not like venture capitalists in that they're not known for investing a lot of money on high-risk borrowers with a provocative idea and a slight possibility of high profitability. Banks instead look for low-risk, lower-profit ventures. The most important thing to a bank is that the loan is repaid, which causes them to be pretty stringent on whom they lend money to. This is why startups with no previous track record have a hard time securing bank loans. They have little to no collateral, no profits and no long-term performance. By adequately preparing and choosing the right bank, however; they can greatly increase their chances.
You'll first need a well-constructed, up-to-date business plan. Banks lend to small businesses that have everything spelled out and planned for. The more details and support you provide, the stronger your business plan will be. You'll want to bring other relevant documentation as well, like financial statements or personal credit history. Your completed loan application should also be on hand. Although it's not necessary, providing the loan officer with materials such as brochures, ads, articles or press releases might aid in boosting your image and credibility. Just be sure that all included documents are neat, legible and organized in an attractive manner.
Beyond preparing documents for your meeting with a loan officer, you'll also want to prepare yourself. Be confident, informed and ready to answer all questions thoughtfully. Here are some basic questions that should already be covered in your business plan, but may also be asked by your loan officer.
There are a couple ?don'ts? to your meeting with the loan officer. First of all don't pretend that there is absolutely no risk involved with your business. There's always a risk, and banks already know that. If you don't address them the loan officer might assume that you haven't even thought about it. Instead explain what the major risks are and how you intend to manage them. You also don't want to push the loan officer for a decision. This could likely result in rejection. Loan officers can't make a final decision until all of your documentation is complete, so if you want to hurry the process, do it by ensuring that all of your paperwork is thorough and organized.
The second aspect of the bank loan process is choosing the right bank. Start by looking at the financial institutions that you're already working with. There's definitely an advantage to being a familiar face. These banks already have records of your history and financial behavior, and if you've already demonstrated to them that you're financially responsible, then you're in good shape. If getting a loan from a bank you already do business with is not an option, then look to banks that are actively looking to lend to small businesses. They often have appealing financing offers and a quicker lending process. These kinds of banks are hard to find though. Another choice is smaller institutions, like credit unions. With banks like these you are more likely to be able to talk directly to higher-level decision makers from the very beginning.
