Tips on Obtaining Your First Business Loan

by Brad Darnell

Securing your first business loan can be a difficult process. You may have created a great business concept, but it will still require money to get it off the ground.

For a bank, this loan is considered high risk due to the lack of business history, so you’ll have to demonstrate to your banker that your business is going to be a success.

Below is a list of things to consider before you apply for bank financing. These suggestions apply to anyone applying for a commercial loan, but are especially helpful to entrepreneurs. 

Are you new to the industry? 

Banks like to know that you have industry experience or related business experience. Be able to show your expertise to help prove you are credit worthy. If you don’t have industry experience, consider hiring a manager from your specific field that can help you get a running start. Without industry knowledge, it will be difficult to get a loan approved. 

What is going to be the bank’s collateral? 

Many new businesses lack collateral, especially businesses focused on providing services. Be prepared for the bank to look towards your personal assets to secure the loan. Your home, marketable securities or other real estate are all collateral options.

How are you going to pay this loan back if your business doesn’t go as planned?

Demonstrate that you have a contingency plan. Is there a spouse receiving a salary? Do you have cash reserves? Do you have any other streams of income? Your banker needs to know that you are planning for the best and the worst case scenario. 

Do you have issues regarding your personal credit history? 

Pull your credit history from the credit bureau prior to applying. Anticipate that your bank will ask you about all your credit “blemishes.” Banks vary on their acceptance of minimum credit scores. Generally, if your credit scores fall below 620, a commercial loan approval may be difficult to ascertain.

Consolidate or minimize your personal debt immediately.

When considering financing for your business, banks will review how you have handled your personal finances. High revolving debt (credit cards), multiple installment loans and a high mortgage payment can make it very difficult to get approved. The lower your monthly payments, the easier it will be for you to manage a new business during lean months.

Meet with a trusted financial and legal advisor.

Preferably, an accountant and attorney that specializes in small business start-ups or your specific industry. Establish a company structure that makes sense for you and your partners. If you plan on going into business with a partner, discuss, in writing, what happens if one partner wants to dissolve their interest. 

Spend time on your business plan.

The SBA website www.sba.gov/smallbusinessplanner provides a very good format. Banks want to see that you have thought through your business and know how it’s going to be profitable.

Brad Darnell is District Manager for Small Business – Kansas City market, U.S. Bank.
P | 913.671.2750
E | Brad.Darnell@USBank.com