April 28 to May 4 is National Small Business Week. Here’s What You Need to Get a Small Business Loan
By Jerry Kroetsch
AVP, Commercial Lending Officer
Building a business oftentimes takes a little help. Whether you’re a seasoned business owner or an entrepreneur with a bold dream, you may find the following adage rings true. It takes money to make money.
A small business loan might be the way for you to leverage a bank’s money to increase the success of your business. Small business loans come in many different forms to align with your needs. Business owners commonly use loans to fund daily operations, purchase equipment, obtain real estate and build offices. Daily operations can include making payroll, launching marketing campaigns, and securing inventory.
Four Steps You Can Take to Get a Small Business Loan.
1. Dream Big, Establish Needs.
Now may be a perfect time to review your original goals and update your business plan (see Blog Business Plans Promote Financial Wellbeing). Along your business journey, there are a few loans options to consider whether starting out, transforming your balance sheet, expanding, or making other changes. You may find a small business loan, commercial mortgage, equipment loan, or business line of credit are needed to meet fluctuating expenses and demands.
2. Meet With a Commercial Lender.
Once you review your business plan and establish potential needs, it’s important to meet with a commercial lender who can review your business plan, discuss your vision, and provide options to help reach your goals. As a community bank, KCSB specializes in knowing the local marketplace. We are experienced lenders for new businesses and expanding companies. We see the everyday needs of our business owners, and with a personalized discussion, can give you financial recommendations.
3. Prepare for Your Request.
With a small business lending request, the best way to qualify is to prove that you and your business can repay the loan. Therefore, to qualify for a business line of credit or a small business loan, you will need to have records of your financial history. There are many ways a lender will review and learn about your financial history. Here are the most important.
Credit Scores – Some lenders may check your personal credit score and your business credit score. Regardless of which scores are checked, it’s important to know and understand your credit score so you can discuss it with your commercial lender. Your credit score can imply how creditworthy you are for a loan and can indicate how likely you are to repay your loan. A higher score will typically reflect a positive credit history, which may give you more borrowing power.
Personal Financial Statements – Your personal financial statement is a snapshot of your assets and liabilities. It gives your commercial lender a general idea of your net worth.
When detailing your assets, you will want to include:
- Cash in your personal bank accounts
- Investments and brokerage accounts
- IRAs, 401(k) and other retirement savings accounts
- Personal accounts receivable and other income streams
- Land or real property
- Vehicles
- Special items of value, like antiques or classic cars
Liabilities, comprise the following:
- Mortgages
- Vehicle loans
- Credit card debt
- Personal accounts payable
- Unpaid taxes
- Any other obligations or liens, such as a small claim’s judgment
Personal and Business Tax Returns – You will need to present your last two years of personal taxes and business taxes. Your tax returns provide the best picture of total income and revenue. Once you present your financial statement and your tax returns, your commercial lender will be able to determine your income and revenue requirements.
Length of Time in Business – Typically commercial lenders like to see a business that has been in operation for at least two years. However, this is another reason it’s important to have your tax returns and personal financial statements available. If everything looks stable, your lender may consider a business that is six months to a year old.
Collateral – To secure a line of credit or a business loan you typically will pledge something for collateral. Collateral is a form of security for your lender. The collateral is an asset(s) that the lender can use to make up for lost capital in case your business defaults or stops making loan payments. The types of collateral most often used for a business loan include:
- Real estate
- Vehicles and equipment with serial number, make and model,
- Valuation of the business (assets)
In some cases, small business loans can be made on an unsecured basis (without collateral), depending on the circumstances.
All these factors will help your commercial lender evaluate your repayment ability and help determine the maximum borrowing amount for which you will qualify.
4. Provide a Written Letter of Intent.
Your commercial lender will require a letter of intent to proceed explaining why you want to borrow money through a small business loan or line of credit. You’ll want to include the following information in your letter:
Your name
Business name
Desired loan amount
Loan purpose
KCSB is your deep-rooted, community bank which understands building your small business oftentimes takes a little help. We offer the necessary time, local expertise, and engaged support to help you achieve your business goals.
Please call 269.679.5291 or visit any branch office to connect with our team. For more information on KCSB’s business line of credit and business loans, see Your Guide To Business Banking. To find a location most convenient for you, please see https://kcsbank.com/locations. Start your business journey with your KCSB commercial lender today!
Kalamazoo County State Bank is an Equal Housing Lender and Member FDIC.