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Get the bank to say yes to your small business loan

Steve Strauss
Steve Strauss  - Editor December 20, 2022
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6 Min Read
Business loan
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If there is one thing that seems to be a constant challenge for entrepreneurs, new and old alike, it is finding the money to fund the small business dream. There are various ways to do that of course – savings, friends & family, and bank loans are the usual suspects.

Let’s talk about that last option for a moment. When it comes to getting a bank loan, we have good news for you.

Banks Want to Lend to You

Banks want to lend you money; after all, that is their business.

Given that, it is your job to make it as easy as possible for a bank to say yes to you. You do that by showing them that investing in your dream is a responsible, low-risk, smart idea.

How? Here are 5 ways to boost your chances of getting that loan:

1. Work on your fundamentals: If in fact it is your job to show potential lenders that assisting your business is a sound financial decision, then the first way to do that is to do what any good business does: Show a profit. Your debt-to-equity ratio therefore is essential.

You can boost your financial state by:

  • Getting paid on time. Get your accounts receivables up to date and don’t let accounts fall past due.
  • Running a lean ship. Cut overhead where possible. Keep an eye on labor costs.
  • Increasing your cash flow. Easier said than done you say? Maybe, but it is also true cash flow is king.

2. Have an up-to-date business plan: Lenders want to see that you know where your business is and where it is headed. They want to know why your business is special. Your business plan tells them that.

Additionally, a business plan is your plan for how you will get from Point A to Point B. Consider: Would a pilot ever fly from New York to Houston without a flight plan? No. A flight plan explains which direction to head in, how much gas is needed, important landmarks to look for on the way, cautions to be aware of, and so on.

Well, that is what your business plan is; it is your flight plan for your business. It helps you understand whether you are headed in the right direction, what to look out for on the way, and whether you have the resources to get where you plan on going.

Any lender will want to know that you know where you are going and how you plan to get there.

3. Get your ducks lined up: When applying for a business loan, aside from having a business plan, you will need to share a host of other business information, so you would be wise to prepare it all before ever applying for a loan:

  • Contracts and leases
  • Financials
  • A list of applicable collateral
  • Credit and financial information for the principals of the business

Again, your job is to show any lender that lending to you is a low-risk proposition, and you do that by being prepared and professional. Speaking of which . . .

4. Be prepared: Know your financials cold. Be able to explain why you need the amount of money you are requesting, how you will use it, how you plan on paying it back, and by when. By the same token, it should be clear that proffering pie-in-the-sky financial projections is mistake, and often a fatal one. A bank wants to know that you know what you are doing. Offering puffed-up financials looks amateurish.

Similarly, don’t cover-up the risk. You need to be willing to share, not only the good news, but also that you have a plan for dealing with whatever risks are present.

Finally, don’t forget that getting a loan is not just a numbers game; there is a significant human element involved. So it would behoove you to cultivate a relationship with a small business loan officer before ever applying for that loan.

5. Get help: Finally, studies show that it can really increases your chances of getting an approval if you have your business loan application reviewed by a professional before submitting it. After all, it is likely true that you have not applied for a lot of business loans, and as such, it is not your forte.

But there are people whose forte it is. You can have your loan package reviewed by an SBA or SCORE counselor for example or, of course, that small business loan officer with whom you have struck up a relationship.

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Steve Strauss December 20, 2022
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Posted by Steve Strauss Editor
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Senior small business columnist at USA TODAY and author of 15 books, including The Small Business Bible, Steve is your host here at PlanetSmallBusiness.com.
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