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How to get a bank loan

How to Position Your Business for a Bank Loan

How to get a bank loan

Recently Julie Nelson Meers of Missouri Bank spoke at the Alliance for Economic Inclusion meeting. Her topic: how to position your company to get bank financing. Here are her top tips. This one is a quick and must read.
 

Why is getting a bank loan a hassle?

Meers noted that a company needs to understand the model of banking.

"We take your grandmother's money and loan it to other people," she said. "Our tolerance for risk is very low."

She also noted that due to tight regulations, banks can only have 1% of their loans go bad.
 

What does low risk look like?

"Banks make loans to people, not businesses," Meers said. Some of the things they look at to minimize risk are:

  • Personal credit score must be 700+; a person can do many things to improve their credit scores.
  • Personal and business bankruptcies are a red flag. 
  • A successful track record in business—that's why startups have trouble getting bank loans. They don't have a history of success.
  • Clear source of primary and secondary repayment: income from the business is the first thing to look at, then other ways the loan could be repaid such as collateral.
 

What kind of collateral does the bank like?

  • Accounts receivable less than 90 days (75% of value)
  • Equipment, computers, real estate purchased for a business (80% of purchase price)
  • Inventory nonperishable (50% of business' cost)
 

What doesn't count as collateral?

  • Leasehold improvements
  • Fixtures
  • Software
  • Perishable or limited use inventory
  • Marketing materials, anything branded
 
For some industries, it's an uphill battle to get a bank loan
  • Restaurants
  • Contractors
  • Hotels
  • Car dealerships
  • Retail

How can you improve your chance of success?

Get to know your banker. "Build a relationship long before you need the money," Meers said.

Add your banker to your email update list. Send an email asking them to subscribe to your blog, social media, etc. Send photos of your product, something interest in your office that speaks to what you are creating. Bankers are people, too. Turn your banker into a fan!

Flickr Image: JakeRust

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