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How To Get A Small-Business Loan
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Article 1: What Lenders Want
Just as you’re in business to make a profit, so are lenders. That much is clear from the interest they charge on the money you borrow.
But a defaulted loan can completely obliterate a lender’s profit. That’s why the No. 1 factor lenders consider when evaluating a loan request is the likelihood a borrower can repay it.
That, in turn, dictates what lenders want most from you.
“The normal thing a bank looks for is first and foremost the cash flow of the business to see that there’s enough money being generated to pay the proposed loan as well as pay the (borrower’s) living expenses,” says Nancy Russell, vice president and regional sales manager of Comerica Bank in Costa Mesa, Calif.
Comerica ranks among the top 20 banking companies in small-business loans, and is the eighth largest lender for the U.S. Small Business Administration (SBA) 7(a) loan program. Russell has made SBA loans for 20 years.
Next, lenders look at the borrower’s “résumé of experience,” as Russell terms it. How long has the borrower owned the business? What business was the borrower in before? What’s the borrower done as an adult?
In weighing cash flow, lenders look for how well the prospective borrower covers his debt service. Evaluating the résumé of experience isn’t as clear cut, but lenders will want to look at your whole résumé when making this more subjective analysis. Where have you been, and what has your work history been since high school?
The next factor scrutinized is the borrower’s personal credit rating. Lenders want to know:
Joan Earhart, senior vice president of Fullerton (California) Bank’s Business Community Capital division, says lenders also love to hear that borrowers “are not shopping their loan with 15 different lenders.”
“We treat every application as if we’re the only bank involved. It does get very frustrating when we spend a lot of time, and then are told at the last minute they are going with someone else.”
There are financial circumstances that compel some shopping around, Earhart concedes, and “we still deal with shoppers. But it’s always nice to know the borrower will work devotedly with us as we work devotedly with them.”
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