Taking the mystery out of the bank loan approval process

Does it feel like method or mystique? Is it transparent or does it feel like the person behind the curtain is pulling all the levers?

As a business owner applying for a loan, ask yourself if the bank has taken the time to get to know you and your business.

Do they have all the information with which to structure a mutually beneficial, longstanding relationship?

Is there a thorough understanding of cash flow and profitability, its history and trends and why it has dipped? Is there an understanding of how well the business is positioned and the likelihood of the forecast materializing?

Interests of the business and the bank should be aligned or it may not end well. Business interests and loan structure and progress metrics should be in sync. As the business progresses, the relationship with the bank should as well.

Take time to get it right on the front end. Before loan approval, ask questions – understand their process, discuss openly, ensure a common understanding, address what ifs, and then challenge your lenders. Collaborate on the best outcome, structure and definition of success.

All should be on the same page on valuations of business assets, i.e. real estate, inventory, receivables and equipment. Often, third party valuations are needed, or a detailed company analysis might suffice.

One thing is for certain: the market or the economy will eventually throw you a curve. As a business owner, once a plan is in place, over-communicate with your bank during this process as a partner. Engage the bank. Don’t wait for them to solve the problem.

Banks have money to lend. Optimizing and understanding the loan approval process for the success of your business is important. Both you and the bank want consistency, no surprises, a business focus, responsiveness, nimbleness of action and clarity of communication. That is a winning formula.

David Vetta is president and chief executive officer of First Business Bank-Milwaukee in Brookfield.

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