Monday, 18 November 2019
Maybe your business found the ideal property for a larger distribution warehouse or plans to add a new market to your territory are falling into place.
Or perhaps you are ready to launch a new service for your clients, which means adding employees. As the saying goes, you often have to spend money to make money. That's when a business loan may come in handy.
Lynne Herndon, Executive Vice President and Commercial Banking Segment Executive at BBVA, offers these tips on how a business owner can improve the chances of netting a business loan.
Do your homework in advance of your business loan meeting and have copies of your resume, the resumes/titles of the people on your management team, your company's history, financial statements for your business and personal life, and any legal documents. The more prepared you are, the more you will impress the loan officer.
“Be able to articulate your story really well," recommends Herndon. “If you started the business, explain how you did that, how long you've been running it, explain how you've been able to grow your company."
It's normal for companies to experience ups and downs; be open about challenges and successes with your loan officer to develop trust. FYI: Most banks will look back at least three years, so it doesn't make sense to hide anything.
“Explaining how you recovered from a downturn will show the bank your ability to handle problems and move past them," she says.
But what if you experienced problems more than three years ago?
"Just be honest," suggests Herndon. "Sometimes we will look at financial statements dating back five years. But if you had a problem outside of that window—in 2008 during the recession, for example—just explain what happened and what you did to rectify the situation. The bank is interested in your ability to pay your loan. Substantiating clearly through financial statements that you've always repaid your debt sends a positive message."
“Sometimes really small companies won't have that person on staff; another member of the team will be in charge of those responsibilities," she says. “Whoever that is; bring them along."
Smaller companies may shy away from spending money to get financial statements professionally prepared, but as Herndon explains, it's worth it.
“It will give banks a lot of comfort to see that a third-party reviewed your financial statements before asking for a loan," she says. “CPAs provide a variety of services at different price points; choose the one that works for you. It will help you in the eyes of the bank."
Some banks will want business owners to personally guarantee debt repayment. The business owner should be prepared to provide a personal guarantee and show sources of income.
“That way, we'd know that if the owner had to take a salary cut, there'd be other income available as a cushion," she says.
Once you've secured a business loan, touch base with your loan officer frequently.
“It gives the bank comfort when they are being updated," says Herndon. “If there is a downturn or hiccup in a certain month, we want to hear that directly from the business owner. Timely and frequent communication after a loan is booked is really important."
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates. All accounts and credit are subject to approval, including credit approval. BBVA and BBVA Compass are trade names of BBVA USA, a member of the BBVA Group. BBVA USA is a Member FDIC.
Are you in the market for outside investment? Here's a checklist to see that you have everything in order before applying for a loan.
An SBA loan can be an attractive way to help you accomplish your goals if you understand the process.