A penny loaned is a penny earned

Getting a business loan is hard work, but the right lender can make it happen


David Hannah, assistant vice president and office manager of the Barkley branch of Horizon Bank, said business owners need to bring some of their own money to the table as well before most banks will lend.

An idea and hard work are often not enough to get a business off the ground. Sometimes, businesses need a little outside financial help.

Banks and lenders make their money from helping people jump start their business — whether new, old or expanding.

Getting a business loan can be intimidating, especially when you start talking about collateral. If you fail, you not only lose your business, you could lose your home.

But without a loan, you could lose your business.

So how does one weigh the risks and then go about getting a business loan?

“Go in there prepared,” said Sound Images owner Harry Moreau, who got a loan in 2006 to start his business.

That seems simple enough, but being prepared is multifaceted when talking about a business loan.


Have a plan

Some people are trustworthy, and some are not. Some ideas are good, and some are not. To get a loan, you need to show a lender you’re trustworthy and you have a solid business.

“Banks need a clear picture of why something is going to succeed,” said Patrick Holm, senior business relationship manager at Wells Fargo.

The picture is painted in the form of a business plan, which involves much more than saying, “I plan to start a business.”

“Don’t go there and hope they’ll draw up a plan or projection for your business for you,” Moreau said.

Moreau approached Whidbey Island Bank armed with a business plan for his animation studio. That plan contained several key aspects that led to his success, echoed by loan officers in Bellingham.

Holm said having experience in an industry you’re trying to start a business in is essential

Moreau’s business plan outlined his experience in the business: He has been working with animation and film for 35 years.

“I had a track record,” he said. “They based everything on that and what I could potentially do in the area.”

Potential for the business is key. If a market does not exist for your product or service, a lender is going to be reluctant to loan you money, however.

Proving potential to a lender can be difficult.

Moreau said he was able to provide a profit-and-loss analysis for the first couple years of his business, which included calculating what he could buy for his business with his own money. His ability to provide capital was another item in his favor.

“Nobody’s going to lend you money unless you’re going to put up some yourself,” said David Hannah, assistant vice president and office manager of the Barkley branch of Horizon Bank. “If you want money, don’t come in two days before you need to pay for something.”

Holm said part of preparing to get a loan is in long-term planning. Businesses should not wait until a rainy day to get the umbrella of a loan.

“It sounds like a cliché, but the people who need money can’t get it,” Holm said.

Lenders are less likely to loan money to a business that’s failing and needs to pay its bills to stay afloat, Holm said.

All this needs to be put into a business plan to present to a prospective lender.

“If you have a great idea but a lousy presentation, it won’t work,” Hannah said. “You only get one chance to sit in front of a banker to sing your song.”

Keep in mind you’re selling yourself and your idea to the lender. If you’re not excited about your business, the lender won’t be either.

“Your optimism is always a plus,” Moreau said.

Banks want to lend money — it’s the primary profit for the institutions — but it will not go in on a bad investment.

“The entire thing a bank is looking to do is minimize risk,” Holm said. “If the customer fails, the bank fails. In lending money we’re becoming partners with the business.”

For existing businesses, showing a historical cash flow that will support the expected growth of the business is important.

Dyan Liden, owner of Eva Salon, said showing a historical cash flow to support her planned expansion was one of the major road blocks in getting her loan.

“Everything else looked great,” she said. “My credit, no back taxes – all of those things were in order, but when it boiled down to it, the historic income didn’t exist.”


Get some help

Seem intimidating? There’s plenty of help available, much of it free. But Hannah warned against trusting online resources too much.

Developing a business plan usually involves someone outside the business. Hannah recommended at the very least having someone check the plan and numbers to make sure they make sense.

Accountants and lawyers often aid business owners in developing a plan. But perhaps one of the best resources is the Small Business Development Center (SBDC), funded through Western Washington University’s College of Business and Economics and local, federal and state entities.

Holm said the SBDC is underutilized, which is odd considering the services it provides are free to small business owners in Whatcom County.

Liden said the advisors at SCORE helped her develop her business plan, but even then finalizing the plan took weeks.

The federal government’s Small Business Administration is also a good resource. The SBA can become a partner in the loan for qualified businesses, guaranteeing part of the loan to the lender.


Ready? Set? Apply!

Now comes the hard part: actually applying for the loan.

The next step is choosing a lender. Choose wisely.

“Banking is a very individual business,” Hannah said.

Banks and lending institutions often cater to different types of people and entities looking for loans. Make inquiries to local networks, similar businesses and the lenders themselves to see if your business is a good fit.

Also realize getting a loan takes time.

“Speak in days, not hours,” Hannah said.

He recommended giving time to the lender to review the application, and realize there will most likely be more questions. Typically, more than one person reviews loan applications, and it takes time for it to go through that process.

Hannah warned against applying at too many places. One thing lenders review is the applicant’s credit report, and that report is negatively affected by a lot of inquiries.

A benefit of sticking with one lender is the formation of a relationship, which Holm said can lead to better pricing on loan rates.

That relationship continues after the loan.

Nobody wants to play with the child that sits in the corner and ignores everybody else. The same goes for banks and lenders. Hannah said keeping lines of communication open, such as returning your lender’s phone calls, is important.

“Banks are going to play with you much more if you’re open,” Hannah said.

Open communication is a two-way street, he said. Sometimes, lenders give little or no advice. They should be proactive, he said.

“That’s where the banks screw it up as much as the client,” Hannah said.

While you should come prepared when applying for a loan, also realize lenders are there to work with you. Moreau said Peter Cutbill at Whidbey Island Bank was instrumental in helping him jump through all the hoops.

“It’s a thing to go through,” Moreau said. “But it’s rewarding.”


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