The first question I get asked as a commercial banker is What do banks really look for in a commercial loan request? Whether you are just starting your business or have reached a point where you are ready to expand, having outgrown your office or warehouse, there will come a time in the company’s venture when you find you need more funding than you have on hand. That is the time when you nervously approach your bank for a commercial loan.
You’ve probably heard the old saying that banks will only lend you money if you don’t need it, but on the other hand, do we want them to take chances with our hard-earned savings? If you think about it, the bank has a responsibility to be careful with the funds entrusted to it by the depositors, as well as offering loans to consumers and businesses. They can’t be too cautious, or they won’t make loans, and they can’t be too reckless or poor consequences will follow. Somewhere in the middle is the place where good loans are made, and entrepreneurial dreams come true. By planning ahead, you can increase your opportunity to get approval for that commercial loan.
The 5 C’s of commercial lending.
Just as diamond quality has four C’s (cut, color, carat and clarity), your bank will be looking at the five C’s in consideration of your commercial loan request.
Put your best foot forward.
Your loan request/business plan is like your Facebook profile (but be honest!) for showing lenders what you have to offer. They want to know that you don’t need their money, but that you can use it to great advantage. The business plan should outline what the business is, of course, but also should show that you have done your homework. Who is the management team if it is more than a sole proprietorship? Demonstrate that you have researched the target market and the competition and have a solid plan for success. If you have profit and loss statements and financials, have them audited or at least reviewed by a CPA. This will give your bank the confidence it needs to approve your loan request.
We just sent you an email. Please click the link in the email to confirm your subscription!