Getting Your House in Order Things to Consider Before Applying for a Business Loan
By Chris Ward
mall businesses create the lion’s share of the new jobs in this country and family-run businesses are the backbone of that sector. That’s why bankers are committed to providing loans for these companies – the lifeblood of Main Street America. However, before applying for a loan, there are a number of factors for a family business to consider. Besides identifying the purpose and type of loan, businesses should have strong credit. When it comes to maintaining a healthy score, there are several elements to consider: • Look to establish business credit early on and work on building up the business credit history. • Make payments on time. • Keep individual credit cards within the credit limits. • In the case of multiple credit cards, keep your balance well below 70 percent of the total credit available – the so-called credit “utilization.” • Do not apply for too much new credit over a short period of time. Businesses should also understand that derogatory information included on their business report such as late payments, suits or liens, will have a negative effect on their business score. Businesses should habitually review their credit to ensure there is no misreported information and that any satisfied liens or judgments are properly reported. Further prep work includes choosing the best bank to partner with on a loan. One of the best ways to locate the right bank would be a referral from another small business owner, or from your CPA. Additionally, a bank that is conveniently located, or has a branch presence close to the business, also provides the kind of ready-made service you’ll need to foster a strong relationship with the bank. Certainly, starting a discussion with your current bank is a solid option as it can likely avoid the costs and time requirements
of changing banks. And try to limit your credit relationships for your business. Two to three lenders is preferable, especially on the revolving credit side. Similar thinking can be applied to refinancing existing loans. Typically, the most common reasons a family-owned business may seek to refinance is to secure lower interest rates or costs, or dissatisfaction with the level of service provided by their current lender. Family businesses should consider the accessibility of a financial institution as well as the competitive loan rates and fees compared to their current situation. They may also factor in the size and abilities of a lender to support the needs of the business for the foreseeable future. Today’s small business lending offers an array of options, depending on whether you are planning a new location, launching a product, or looking to hire more help. Do some research about your options and if you are a new or growing business, ask about Small Business Administration (SBA) loans that offer more flexible terms, helping to improve cash flow. Be ready to explain your business plan, and perhaps even the story behind your business, as well. It gives you a road map and makes institutions more comfortable in partnering with you to help grow your business.
It’s also important not to bite off more than one can chew. It may be tempting to borrow a lot of money initially to grow the business as quickly as possible, but it’s better to grow it slowly and manage profitability at the same time. In addition to helping you determine the best type of loan for your business – which might include a traditional term, mortgage, line of credit or business flex for things like assets and equipment, or an SBA loan – an experienced banker will work with you to determine the right suit of tools for you. This can range from cash management to special business bank accounts, which may offer no monthly maintenance fees and no minimum account balances for small and startup businesses. Citizens Bank – and all banks – understands that financing is critical to the success of a growing business. There’s a bank out that that fits your needs, whether it’s a drop box, a refinance or a new loan. Many banks, including Citizens, have long track records of lending to family-, womenand minority-owned businesses, and have tailored borrowing solutions that can provide financing for enterprising familyowned businesses to help them conserve capital and maximize cash flow. ■ CHRIS WARD IS PRESIDENT OF BUSINESS BANKING FOR CITIZENS BANK. 11