Whether you’re a sole proprietorship, limited liability company, or corporation, obtaining a small business loan will be a top priority when it’s time to expand your company’s reach.
If you dread ‘haggling,’ consider these tips for negotiating with a bank.
Have current financials from your CPA ready for the bank to evaluate when you initially make your loan request. Include at least two years of historical comparative profit and loss statements as well as balance sheet information and the most recent 12 months of your financial performance for all business entities. If you have one-time credits or expenses or changes made to your financials that might affect sales or expenses, provide written explanations. Also, include a financial statement that accurately reflects your current personal financial position.
Know What You Want Going into the Negotiation
You need to know exactly how much money you need before beginning the negotiation process and what your other possible sources of funds are. First, it will show the lender that you’ve done your homework, which makes you seem more professional, and second, if you know there are other ways to get funds, you won’t feel pressured to accept unfavorable terms. In fact, the bank might be more willing to negotiate when they know they have competition for your business.
Understand What You Can Use as Collateral
You have two types of collateral: assets you own outright, such as your vehicle or equipment, and assets you still have loans for, such as your home. Having collateral establishes you as a better lending risk to banks and may give you better loan options when it comes to interest rate and terms.
Understand Your Terms
Don’t forget to look at the lending alternatives: short-term notes, weighted average-term notes, revolving lines of credit, or traditional bank loans. Also, consider fixed rates and floating/variable rates. What will your monthly payment be? Is it fixed or variable every month? Can you pay down or pay off the loan early without any penalties? What other costs and fees are associated with the loan?
Don’t Be Afraid to Walk Away
Settling for an okay loan can hurt your business more than not getting a loan. Remember: just because the lender spent time talking to you doesn’t mean you owe them your business! If you feel like the terms aren’t right for you, don’t hesitate to walk away. Look more closely at your other funding options; you may find a better source of funds – or you may discover that the original bank was the best option after all. (Therefore, don’t burn your bridges when you walk away!)
Needing a loan as a small business is more of a when than an if. Make the process easier for all involved by being prepared before heading to the bank to negotiate. Lenders like to see that you’ve given thought to how you’ll put the money to good use, so a comprehensive, well-thought-out business plan and detailed documentation will go a long way toward getting approved.