How to position your small business as a ‘good loan’

“Wisconsin banks are strong, stable and ready to lend” and “are in the best position in years to serve Wisconsin’s consumers and improve the state’s economy.” That’s the latest assessment from the Wisconsin Bankers Association.

The lending climate has improved. Banks are well funded, liquid and we’re looking to make good loans. Two important ways you can position your small business as a “good loan” include:

  • Understand your needs and position your request: Bankers look for primary and secondary loan repayment sources. The primary source is cash flow via earnings. Secondary repayment resources could include the pledging of business or personal collateral as well as the addition of a loan guarantee by the firm’s owners, suppliers or customers. The more certainty we have that the loan will be paid “as agreed,” the more likely it will be that you not only receive a favorable loan decision, but also the best interest rate.
  • Don’t ask for loans that should be funded with equity: Bankers aren’t paid to take equity risks; we’re paid to make loans that will be repaid on time. The amount of equity needed depends on several factors. One of the most important relates to your industry and the role your business plays in that industry. The amount of equity required for a manufacturer will be different from that required to run a wholesale distribution business. Industry stability and business model are two other determining factors.

You can also improve your chances of securing financing by thinking like a banker. Understand the risks of operating in your industry and have a plan to mitigate those risks.

Finally, get to know more than one banker. Business owners should continue to develop “back up” relationships with other bankers just in case an unexpected change occurs with your current bank. You should meet at least twice a year with other banks.

Before requesting a loan, find out which banks make loans to firms like yours. Look for bankers who understand your industry and work with firms that face the same types of challenges that you do. These bankers are better positioned to provide helpful advice tailored to your needs. Many times the advice a banker gives is worth far more than the product or service they provide.

— David Schuelke is president and chief executive officer of Brookfield-based Spring Bank.

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