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20 Tips on How to Get a Commercial Loan
By: Craig Watrous
We thought this list might serve as a useful reminder to business owners in search of a commercial loan. Getting a commercial loan is dependent in large part upon the overall state of the economy and the lending markets, but there are a lot of small things borrowers can do to make themselves more attractive. Many times business owners overlook simple ways to make their loan application stand out. Below are 20 tips on how to get a commercial loan.
1. Do Your Research:
Find and research potential lenders in your area and make sure that they actually make commercial loans to businesses in your industry.
2. Get to Know your Banker:
Once you’ve determined potential banks for your loan, get to know the decision makers at those banks. Loans decisions are generally made by committee. Consider the bank as an investor in your business, developing a personal relationship with your banker can make a significant impact on the bank’s propensity to approve your loan.
3. Keep Business Projections Reasonable:
Make sure all business projections are conservative, reasonable, and defensible. Being overly optimistic will hurt your credibility.
4. Fully Complete Your Loan Application:
Sounds intuitive, but you’d be surprised how many applications aren’t fully completed. Make sure you complete all of the loan application. Make the review process easy on your loan officer; don’t rely on his/her assistance.
5. Business Plan:
Even if one isn’t required, strongly consider putting together a concise, professional, business plan summary (a few pages). Keep in mind that the bank is effectively investing in your business; provide them with professional materials describing what that business is and why their investment is a good one.
6. Get a Credit Report:
The business should get its own credit report and any of the individuals guarantying the loan (probably unavoidable for a small or new businesses) should also get credit reports. Make sure all inaccuracies are cleaned up, liens are properly released, etc.
7. Description of All Disputes:
If your company is involved in a lawsuit, you may need to get a letter from your attorney explaining/analyzing the case.
8. Negotiate the Interest Rate Intelligently:
You’ve already researched the market and should have a good understanding of current rates. Don’t over negotiate your rate. Negotiating past the point of a quarter percent can be counterproductive. The bank wants to make a profit, you want the loan, and you want to maintain a good relationship with the bank. Over the long term, the quarter point will be less valuable than your relationship with your banker.
9. Inquire Early About Legal Fees:
Ask the bank for an estimate on legal fees; if possible ask for a cap on fees.
10. Limit Your Attorney’s Redlines to the Loan Documents:
Most banks aren’t willing to accept significant red lines to their standard loan documents. Don’t allow your attorney over negotiate the loan documents. This can result in significant delays, added costs, and potentially the loss of your loan.
11. Keep Your Collateral in State:
Having collateral in multiple states can raise the lender’s concerns over adequate collateral. It also requires the lender to review multi-state laws and makes their monitoring of the collateral more difficult.
12. Tax Documents:
Provide the lender with all of the business’ tax returns and the loan guarantors’ tax returns promptly.
13. Be Considerate:
Your loan officer has multiple clients. Be respectful of his/her time. Maximize the efficiency of your meetings.
14. Provide All Current Business Appraisals and Environmental Reports.
15. Financial Statements:
If your business has audited financials, provide them. If it doesn’t, provide detailed financial reports. If any of these reports need explaining, provide your own foot notes. Provide your business and personal financial statements promptly, without the bank having to ask you for them.
16. Clearly Describe Repayment Sources and Timing.
17. Offer the Bank Additional Business:
Consider using the bank for the business’ other accounts. Present your business as a more attractive potential bank customer. Don’t use another bank’s specialized services without giving your bank the opportunity to provide the same.
18. Present a Professional Loan Package:
Your business is being judged in part on the paper it presents in its application. Binding, tabbing, indexing, and labeling all help project a professional, competent business image.
19. Put Yourself in The Banker’s Shoes:
Offer collateral and a loan proposal that you would be willing to accept as a banker.
20. Connect Your Advisors:
Make sure that your professional advisors, accountants and attorneys are all available to answer your banker’s questions.
We hope these have been helpful.
(Mallon Lonnquist Morris & Watrous, LLC, is a business, employment, real estate, and litigation law firm. Craig T. Watrous is a Colorado business lawyer and partner at MLMW, based in Denver, Colorado. Craig regularly represents clients on both sides o loan transactions. Craig can be reached at email@example.com.)