financing the dream
You’re Not a Loan Have questions for the bank? Us, too By Mallory Arnold
APPLYING FOR BUSINESS loans can be
stressful, daunting and confusing if you don’t know where to begin. Mike Lamping, Columbus market president at First Federal Lakewood, answers our questions about types of business loans, good and bad credit, and how to get approved. Lamping categorizes commercial business loans into four segments: Commercial real estate: a mortgage secured by a lien on commercial property opposed to a residential property. Commercial real estate refers to any incomeproducing real estate used for business such as offices, retail or apartments. Line of credit: a flexible loan that consists of a defined amount of money you can access as needed and repay over time. “This works for day-to-day operational aspects,” Lamping says. “Hopefully, over time, the business becomes less dependent on lines of credit.” Term debt: a loan with a set payment schedule over several months or years. “This type of loan is for things like equipment purchases, office purchases, manufacturing equipment and vehicles,” Lamping says. Acquisition loan: a loan given to a company to purchase a specific asset or to acquire another business. “The purchase price is based on the customer and client list,” Lamping says. “It’s not tangible collateral.” It’s fairly straightforward to pick a loan option based on an individual’s situation. Once a business owner decides on the type of loan to apply for, it’s important to investigate their credit so as to not go into a bank blind. What many people don’t know, Lamping says, is that there are two types of credit to account for: business credit and
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cityscenecolumbus.com | July/August 2021
personal credit. Business credit is based on any past business financial history, while personal credit is tied to personal spending history. Bankers often look at both. “For a typical small business, the individual and small business are very closely related,” Lamping says. “So it can be hard to separate. If a person as an individual has a bad credit score, it carries over to the application for the business loan.” According to Global Finance, a business line of credit is one of the most soughtafter loans because it’s perceived as easy to attain. Lamping says that, like any loan, a line of credit is beneficial for specific instances. Lines of credit are meant for managing short-term swings of liquidity. “Maybe you’re a candy company and most of your business is sold around Christmastime,” Lamping says. “So, in the warmer months, you’re building up inventory and drawing from your line of credit so that, during the holiday season, you’ll be flooded with cash and can pay the line down.” This is far different compared to an instance where a business wants to a loan to purchase a truck. In that case, a term loan would be most appropriate, since a truck
is going to be around for at least four or five years. “You’re matching that asset life with the loan term,” Lamping says. Risky Business Certain industries are viewed as riskier than others because of historical success rates in those businesses. For this reason, loans may be difficult for restaurants, bars and hotels to attain. If a business is considered risky, how does one make their application for a loan more attractive? “Put up more money as far as collateral or equity,” Lamping says. “Instead of 20 percent equity, put up 30. This allows for less risk for the bank.” He also advises that businesses should demonstrate they have enough liquidity to sustain things in the event that profit doesn’t come as quickly as projected or if other issues arise. “People can make some pretty fancy Excel spreadsheets and presentations to show how profitable their business is going to be," Lamping says. "But the question is going to be, does the bank feel comfortable
