The process of obtaining a bank loan or a SBA loan starts with doing some appropriate homework. Start collecting some generic information on your business and the owner(s) such as addresses, phone numbers, ownership style, tax identification number and social security number.
Banks base their financing on the performance of your company and on the collateral you are able to provide. So collect this information. You should be able to show the bank some historical income numbers (tax returns) and also a business plan that shows why you need the money from the bank. Do you use the money for buying inventory, some new machinery or repaying some other financing? Also think about the collateral you will be able to provide. I wrote a blog about how banks assess collateral which might be useful to read. Unsecured lines of credit are rarely available to small businesses and if banks are granting these credit facilities it is only to their best long-term clients.
The best way to approach a banker is to make an appointment. With most (large) banks you can make these appointments through the Internet, and if not, call. Going to a branch is also an option but most likely the banker you need to meet will not be available and the persons behind the counter are usually not the people who can assist you with small business loans— you need a specialist in small business banking.
Decision making in a bank is not fast, it might take days and sometimes even weeks and several more meetings or phone calls before a bank will give its approval. However, your banker should be able to tell you after your first meeting if your loan request will be an absolute “no-go”. You should always ask the banker for this at the end of the meeting and experienced bankers have a good sense if your loan request will be a “no”, a “probably yes” or a “maybe”. You should interpret a “maybe” as a probably not.
I always recommend people to approach more than one bank for a loan, but in case of a “maybe” or a decline it is best to move on fast. Don’t take a decline too hard— it happens to many small businesses and it does not mean that your business is bad, it just means that you have not fulfilled the parameters the bank has set. These parameters change from bank to bank so try your luck at several different banks, both large and small ones.
Small business bankers are usually well aware of the conditions for SBA loans. They usually prefer to grant bank loans because it is an easier process but if they feel the risk is too high for the bank alone, they might refer you to a SBA loan officer at the bank. SBA loans are loans whereby the government guarantees part of the loan amount to the bank. Therefore, it makes the loan less risky to the bank. SBA loans are somewhat bureaucratic, it is a time consuming process. Having said that, most bank have specialists for this loan product who could almost immediately tell you if your loan request could be approved by the SBA. Please note that an SBA loan has to be approved twice, both by the bank and the SBA.
It all seems quite complicated but there is also a positive: the economy has been improving the past two years and finally banks are opening up more for lending to small businesses.
About the Author — Ronald Blok was the CEO of RaboBank N.A. from 2006-2013 and has worked in the banking industry for over 20 years.
This article was originally written on January 27, 2015 and updated on November 1, 2016.