Posted on: 6 July 2018
When you first start a small business, you can run it with your personal banking account for quite a while. The moment you need to secure a business loan, however, you'll need to move to commercial banking services. As your business expands, the services provided by a commercial bank become necessary – revolving lines of credit are vital for covering your day-to-day operations, and term loans are necessary for purchasing capital or real estate used for expansion. Whether your small business is just starting out or planning an expansion, here are some tips on how to secure the funding you need from a commercial bank.
Look at Smaller Commercial Banks for Personal Service
When it comes to securing a small business loan, sometimes smaller banks are better. You're able to form a personal relationship with the loan officer and are likely to receive more help drafting the required documents in order to prove that your business is viable. Many small commercial banks receive most of their income from small business term loans, so they're typically more interested in working with local small businesses than national banks are.
Not only do you develop a personal relationship with your loan officer, but a loan officer at a small commercial bank likely has more autonomy than one at a big national bank. When you try to secure a term loan for your small business at a national bank, it often comes down to an algorithm that takes your business' profitability and your own personal credit history into account. The loan officer may not have any authority to override the algorithm. Loan officers at smaller banks typically have more authority to give you a loan if they trust your skills and your business plan, even if your credit isn't perfect.
Consider a Loan Backed by the Small Business Administration
Much like the Federal Housing Administration allows lenders to offer federally-subsidized mortgages to aid high-risk homeowners, the Small Business Administration allows lenders to offer federally-subsidized term loans.
SBA loans are aimed towards small business owners that are just starting out or that are expanding for the first time. They're designed to boost the economy by giving small businesses with few assets favorable loan terms. The SBA offers some targeted loans, such as loans for veterans who are starting a small business, but also offers more general programs for small businesses with few assets or little ability to make a down payment on the term loan.
With an SBA loan, the federal government assumes some of the risk of offering a term loan to small businesses. This makes lenders more likely to agree to a loan or give you more favorable terms. You may not need to put as much of your own money down in order to secure the term loan.
To take advantage of the SBA's loan program for small businesses, you need to find a participating lender. While it's easier to obtain an SBA loan compared to one that isn't backed by the federal government, you'll still need to provide all the required documentation such as your business prospects to the lender to prove your business' viability. You may still be denied if the lender isn't sold on your business plan. If you're banking with a small commercial bank, however, your loan officer will likely give you tips on how to modify your business plan or improve your application.
Expansion is an exciting time for any small business, and the first step is to ensure that you can procure the necessary finances. Contact a commercial bank like LCNB National Bank to be put in contact with a loan officer – he or she will tell you which documents are required and help you with the process of securing a term loan.Share