Here is a list of common questions that many small to mid-sized businesses are all asking:
Q – Are Banks Still Lending Money?
A – Yes and No. Anyone can see that there have been many banks that have failed. The truth is that many banks made bad loans and now have many non-performing assets on their books. They now need to reduce their assets because of regulations and by doing so they are not able to lend. That being said, there are still MANY banks who did not make risky loans and who have a lot of capital that they need to lend to make money. Banks are for-profit institutions and the way they make money is by lending it out. They will still look for qualified borrowers, but they are very interested in lending money.
Q – Why do most banks want a business banking relationship on top of my loan?
A – There are a few reasons banks seek out these business relationships. First is that they need deposits to be able to leverage the money and make loans. This is how a bank makes money. They also want to build a relationship, become familiar with your business, and get to know you so that they feel more comfortable making their loans. This can be a great benefit for the business owner as well. If the bank if familiar with your business and already understands your needs, you are much more likely to be approved for a loan and have a faster turn around time than someone who the bank has never met and needs to understand who they are and what their business does.
Q – How much money can I get? or How much of a loan can I get pre-approved for?
A – This is a question that makes most banks and lenders cringe. This immediately tells the bank that the business owner does not have a good understanding of their cash flow and what their business can support. Banks have Business Development Officers (BDO’s) who are willing to come to your business and sit down with you and go over your business financial statements to see what your business can support. They will also want to understand what the loan will be used for and how it will benefit your business. Will it be used to purchase new equipment that will lower operating expenses? Will it create a new product that will add more sales, etc…
Q – What documents will I need to submit to the lender?
A – The list is pretty standard for all lenders: 3 years business tax returns, 2-3 years of personal tax returns, 3 years business financial statements (profit & loss and balance sheet), interim or current year-to-date financial statements, business debt schedule, a personal financial statement showing all current assets and liabilities, if there is real estate involved the lender or bank will want to see a photo of the property and probably do a site visit. This information helps the lender understand your business cash flow, personal cash flow, and determine what your business can afford to repay.
Q – Are there any benefits to using a smaller community or regional bank over a large national bank?
A – Most of the small community banks or regional banks have everything that a large national bank can offer, but they are small enough to where they are very personal. When dealing with a large bank you typically deal with someone different each time you call and they probably do not know your business well. The smaller banks tend to have someone in charge of your account and you will deal with the same person each time. They are quick to resolve problems because there are less red tape and a smaller internal management ladder to deal with.