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Looking for a Small Business Loan? This is What You Need to Know.

Small business loan

August 13, 2018

Small businesses help drive our economy. They support the job market and help communities grow. A small business loan is one way new businesses can gain the financial support they need during the early stages of their business.

Going through the loan application process for the first time can be overwhelming. Maybe even a little intimidating, but it doesn’t have to be. Follow this list of tips and best practices to help you prepare for your first meeting with a commercial banker.

Terms You Should Know

Two terms you should know and understand prior to meeting with a commercial banker are collateral and equity. Collateral is tangible — it is something you can touch. Items that are commonly used by a new business owner for collateral include equipment or machinery, office furniture, computers and building space.

Equity is the opposite of collateral. You can’t see it or touch it. Equity is related to what your business is worth. For example, if your business is worth $1 million and you have $500,000 of debt, your business has $500,000 of equity.

Documents You Should Have

Prior to meeting with a commercial banker there are four pieces of information they will request to see:

  1. Past three to four years of tax returns
  2. Personal financial statement
  3. Business plan
  4. Financial projections

Sharing this information with your banker helps them understand your business’ assets and liabilities. It also helps guide their initial conversation with you to discuss the type of loan your business might need and what your business can afford.

If your small business does not have a business plan or financial projections, there are number of free resources available to help you. Small business owners can connect to resources in their community through the Small Business Administration (SBA). The SBA has a network of small business development centers, women’s business centers and business mentors that are available to help you develop a business plan and financial projections.

Types of Small Business Loans

Deciding to explore a business loan isn’t an easy decision. And then on top of that you have to determine what type of loan is best for your business. Your commercial banker will provide guidance on what loan option is best for your business. But it doesn’t hurt to go into your first meeting knowing the types of loans available.

Equipment loans help small business owners with the purchase or lease of equipment. A commercial banker will work with you to structure your equipment loan so it works with your business’ current financial position.

Real Estate Construction loans help finance the acquisition and development of residential properties, owner occupied facilities and income-producing properties. This type of loan also provides small businesses with builder construction lines of credit.

SBA Guaranteed loans provide small businesses with longer repayment terms and higher borrowing limits. SBA loans can help with purchasing equipment or real estate. They also assist with business renovations or acquisitions.

Working Capital loans allow small business owners to obtain financing that help them through the startup phase. A working capital loan can be used to cover costs related to inventory, employees or rent.

Do Your Research

All banks are not created equal. A commercial banker might have a type of business or market they specialize in. Take the time to learn the banker’s area of expertise. If they are knowledgeable in restaurants, but you own a tech startup, that might not be the right banker for you. Another great way to do your research is to ask your trusted community of small business owners which banks they recommend. Talking with another small business owner gives you insight into their personal experience and level of satisfaction.

Doing your research also helps you create a list of banks you want to consider. The first banker you meet with may say no, but that doesn’t mean you should stop. Set up a meeting with the second bank on your list. They may have other ideas or resources that allow them to approve your loan request.

For small business owners, the decision to apply for a business loan can be stressful and even a little overwhelming. Turning to your local banker for financial guidance is a critical first step. Good bankers do more than lend money. They will help you think through important questions and provide the resources required to navigate the loan application process.

Learn about other Financing, Banking and Capital resources for your small business or startup in The Partnership’s Small Business Resources Hub or sign up for the Small Business Resources Newsletter and stay connected for information about upcoming events, other resources and the latest announcements in the small business community in Greater Des Moines (DSM).

Jill Thielen

Jill Thielen is the business banking manager, vice president at Northwest Bank in Greater Des Moines (DSM). Jill has been with Northwest Bank for 13 years and has more than 26 years of financial services experience and expertise. She is also involved with the Johnston and West Des Moines Chamber of Commerce.