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4 business loan tips from a Small Business Administration (SBA) banker

Home Blog4 business loan tips from a Small Business Administration (SBA) banker

Key takeaways:

  • If you’re a new business owner looking for an SBA loan, it pays off to do your homework before you submit your application.
  • When applying for an SBA loan, you’ll want an SBA-preferred lender with staff who specialize in those specific loan products.
  • By accurately and realistically evaluating your business’ projected cash flow, you can help your banker better understand what will be the best fit for your business’ needs.

We recently caught up with John Kimball, senior vice president and manager of SBA lending at MidWestOne. He has been handling SBA loans for a long time and leads the MidWestOne team in doing exactly that. Drawing on his considerable experience, he shared his pro tips for new small business owners and entrepreneurs looking for a loan.

Here are four key tips he shared for applying for an SBA loan:

1. Find the right banker.

You want someone with a genuine curiosity about your business who is willing to learn about the opportunities and hardships in your industry. Your banker should be a person you see yourself having a long-term professional relationship with. The more your banker understands your business, the more he/she can help you in both good and bad times. Set the stage for a professional relationship where your banker can act as your advocate .

Furthermore, your banker should have a true understanding of your business, so you don’t repeat yourself multiple times with various bankers. You could even “test” your potential banker by asking if he/she would meet at your business location to show their commitment to your business.

You should also consider looking for a banker with considerable knowledge and experience. A banker who looks at the big picture can find alternative options if a traditional loan isn’t the best fit. You want a banker who can help you with your business’ cash management, deposit tools and online banking in addition to loans.

SBA loans are a good example of a product your lender should be familiar with. You’ll want an SBA-preferred lender, which means quicker processing and local decision making. Plus, you’ll need staff that specializes in SBA lending in order to help make your loan request a rapid process.

2. Check your credit score.

Your personal credit score is very important in the loan decision. Before applying for a loan, check your credit score. By federal law, you are entitled to a free credit report every 12 months from each of the three major consumer reporting companies (Equifax, Experian, and TransUnion). You can request a copy form or by calling (877) 322-8228. If it’s low, start improving it by paying off debt or correcting any errors. Sometimes it takes two to three months for your changes to impact your credit score, so allow enough time to elevating your credit score if you know it’s low.

3. Be prepared.

An elevated credit score isn’t the only thing needed when meeting with your banker. You’ll have to adequately explain the demands your business is filling in the marketplace, how you’re managing your business and generally all aspects of your business. By diligently covering your business plan, you’re helping the bank understand if it wants to take a risk by loaning you money for your endeavor.

If you’re just starting up or plan to make changes to your business, you’ll need a written business plan. It’s important to note that your business plan doesn’t have to have lots of pages, but it does have to contain the right information. 

Projections of what financials will look like over the next one to three years are key. Rather than focusing on your dream outcome in those projections, be realistic. Your banker is focused on ensuring you’ll be able to pay the loan back – not if you’re going to hit the ball out of park. Plus, your banker likely has dealt with very similar businesses which have succeeded or failed, so he or she will understand what is realistic.

4. Plan your cash flow.

This can even be more important than showing profitability. Insufficient working capital is the primary reason for business failure. You should save enough capital to execute your plans and demonstrate your cash cycle with your banker. If you need to ask for overall capital, make that request at the start.

To accurately show your cash flow, take a look at projections for each month. You’ll need to determine what the cash position of your business will be at the end of each month and share details about those projections. There are resources with tools to help you understand that, including *SCORE, which helps small business owners by matching them with volunteer business mentors. 

If you’re interested in applying for an SBA loan for your business, visit your local MidWestOne branch.

*MidWestOne Bank is not an affiliate with SCORE 

MidWestOne Bank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.