What Do Bankers Really Want? | Advice from commercial lenders on how to secure a loan for a startup
Don Doyle, Webster Five Cents Savings
Heather Dumais, Leominster Credit Union
Paul Raffa, Southbridge Credit Union
It can feel a bit like a Catch-22 for startups. You need money to grow, but to get money — namely a bank loan — you need a track record and healthy financials.
Assembling the information needed to secure a bank loan may seem like a daunting task, but it’s really common sense, according to local commercial lenders interviewed for this article. And the good news is, there’s money to lend.
Every local banker interviewed for this story said their bank or credit union has the capital to share with qualified borrowers.
That’s certainly the story for Webster Five Cents Savings, according to Don Doyle, the bank’s senior lending officer.
“We have money to lend and we want to lend money,” Doyle said. “The more money we lend, the bank’s more profitable and the community benefits.”
The challenge is that few businesses have moved into expansion mode, said Heather Dumais, assistant vice president of business lending for Leominster Credit Union.
“A lot of [business owners] are still very nervous,” she said. “They are concerned about putting on additional debt. Instead of trying to grow, they’re maintaining.”
That means demand for loans is down. And at the same time, of those businesses that are looking for loans, some may not be as financially viable due to the economic slowdown.
Get Your Financial House In Order
Before meeting with a banker, the key is to have financial documents organized and easily accessible. It may sound like a no-brainer, but according to Dumais, many startups don’t have the basics covered.
“A lot of times people don’t have the information readily available,” she said. “They don’t know if their business is making a profit or a loss.”
All banks and credit unions are going to do a cash flow analysis to make sure that the business will be able to cover any new debt.
In addition to looking at cash flow, a loan officer will also consider what kind of collateral a business has if cash from the businesses runs dry, according to Doyle.
Pay Yourself
One common mistake that fledging business owners often make is not paying themselves, according to Paul Raffa, business development manager at Southbridge Credit Union.
“They’re making it look like they can’t even support themselves,” he said. Every viable business should be able to support its employees financially, including the business owner.
“If they’re not showing any income and not cutting a paycheck to themselves, we know that they’re not doing well…” he added.
Have A Business Plan Prepared
Again, under the category of common sense, is the fact that every bank will want to see a business plan from a commercial loan prospect.
Yet many startups don’t have a plan when they walk through the doors of a lending institution for the first time.
“It’s really hard for us to take a risk on somebody who hasn’t thought this through,” Raffa said.
Experience also counts, he added. If someone is looking to open a restaurant, but has no restaurant experience, that’s going to be a tough sell.
While a business plan may sound daunting, it doesn’t have to be a flashy document.
A straightforward financial picture is needed, along with an outline of the goals of the business and an analysis of the market is required.
In a nutshell, the business plan needs to explain how the owner or owners are going to “manage the operations day to day,” Dumais said.
Don’t Be Afraid To Seek Help
Doyle said he regularly refers loan clients who don’t quite have all the pieces assembled to organizations like SCORE (Service Corps of Retired Executives) as well as the Small Business Development Center at Clark University in Worcester.
Both organizations will work with business owners and send them back to the bank when they’re ready.
“They often come back two or three months later with a really good business plan,” Doyle said.
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