What Loan Officers Want
The Small Business Jobs and Credit Act, which was signed into law by President Obama late last month, offers a fresh source of financing for small firms by expanding the Small Business Administration's programs and creating a $30-billion loan fund administered by the Treasury Department for banks with less than $10 billion in assets.
But if you're hoping to get your hands on some of that cash, you'll still need to go through a loan officer, a process that has become extremely difficult for small businesses since the credit crisis.
For a little guidance on what lenders want these days, I recently spoke with Chris Reilly, president of small business lending at commercial lender CIT Group. Here's what she offered up:
Be well organized financially: Lenders love data. And we're not just talking annual financial statements. Be prepared to provide interim financial statements and your tax returns from at least the last three years.
You'll also want to have your business plan all spruced up. 'It doesn't need to be an epistle, but it needs to be a cogent, practical document that lays out where the business has been from a historical perspective and where it's going and why,' Reilly says.
Be ready to tell your story: If you're still standing following the recession, you've probably got a pretty good story to tell. And, let's face it, it's a survival story. As part of that tale, you're going to want to explain and benchmark how you did relative to your industry as a whole and your competitors. 'With consumer spending down, there are a lot of declining trends,' says Reilly. 'But if your particular business held its own on a relative basis, that's a much better story.' Industry associations can be a great source of data to see how you stack up against your competitors. Take the time to do that homework.
Be transparent: Got a spotty personal credit history? Don't bother trying to hide it. The bank will find out. 'If you're not transparent about it upfront, then you're playing defense,' according to Reilly. Explain your situation and bank on character still counting for something in lending.
Be prepared to put skin in the game: The days of 100 percent financing are gone. Depending on the transaction, you might have to put up collateral of between 15 percent and 30 percent. That could include your personal residence. 'Business owners need to be emotionally prepared for that,' says Reilly.
Be realistic: We at Inc. love entrepreneurs who dream big and go where no one has gone before. Sadly, banks don't share our enthusiasm, especially now. 'In this environment, stick to your knitting,' Reilly says. 'This is probably not the best time to go way beyond your core, whether that's your core expertise, core management experience, or your existing, core business.'