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How to secure the small-business loan you need

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By Paul Dini
Banking Basics
Published: Tuesday, July 9, 2013, 12:01 a.m.
Small businesses are often touted as the backbone of the economy, but starting a business and keeping it growing can be a risky proposition that requires plenty of capital. Fortunately, business owners have several resources at hand to secure financing for a variety of needs, from start-up and operating costs to purchasing property or equipment for expansion.
The Great Recession has affected the lending environment. Generally, banks have tightened standards and require additional documentation, but are willing to lend to qualified customers. If business owners can’t get traditional bank financing, the Small Business Administration is a great alternative.
When applying for a loan, do some homework to determine how much money your business needs. Some borrowers think that submitting applications with an unspecified loan amount means that banks will offer a number that represents how much they qualify for, which could exceed what’s needed. What banks want is to see that business owners have done due diligence and are realistic about how much money they need and how the loan will be repaid.
Be prepared to support your loan request with necessary documentation. For new businesses, such paperwork may involve providing a business plan that explains your purpose, systems, projections and any additional sources of capital. For existing businesses, banks may require up to three years of tax filings and operating statements to develop confidence in a firm’s stability and long-term prospects. Personal financial information will also be requested, so be prepared to discuss your financial and credit histories.
No matter the size of the loan, lenders want to know they’ll be repaid. Develop a payback strategy before meeting with a banker. If loan payment funds will be generated from business operations, be ready to show past performance and future projections. Lenders want to see that businesses can more than cover their payments; with a cushion, borrowers should be able to experience temporary or unexpected interruptions in cash flow without harming their ability to repay the loan.
A lender will want to secure a loan with something of value, so be ready to offer collateral. Often, collateral is real property, such as a personal home or car. Collateral could also include the assets of a business, such as inventory or equipment, or personal or business investments or cash deposits. The risk in offering collateral is that it could be lost in the event of a loan default.
If a loan application is denied, all is not lost. For small businesses that have failed to secure a loan through traditional channels, the SBA can provide assistance if the business meets size and other requirements. Although the SBA itself doesn’t issue loans, it can help secure a loan and works through preferred lenders to help qualifying companies through the process. Because the loan is backed by the SBA, it still must make business sense, so applicants must expect to have their credibility, financial history and collateral evaluated.
Whether working through traditional channels, like a bank or credit union, or through an SBA-preferred lender, your banker can be a great ally. A long-term relationship with a banker can offer business owners many benefits: a banker will develop a sense for the company’s activity and growth and may be able to suggest products that could improve efficiencies while keeping costs in check. A lengthy banking history may also provide some leverage when negotiating loan fees.
SBA-approved lenders, in particular, can guide borrowers through the many loan options available depending on what the funding will be used for: startup costs, equipment purchases or real estate. The SBA also offers loans specific to rural communities, exporters and special purposes. Express programs will even expedite the lending process, providing answers within 36 hours.
Whatever your business’s financial need, talk to your banker to consider all options. Small businesses are the backbone of many communities, and banks want to support the growth of these businesses and the economic stability and vitality of their communities.
Paul Dini is a senior vice president and commercial banking regional director at Sterling Bank. He has more than 20 years of commercial banking experience. Reach him at paul.dini@bankwithsterling.com.

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