The ability to put credit to work is often viewed as an indicator of business strength and promise. However, obtaining that credit can be a daunting task for business owners who can find the credit approval process stressful and time-consuming.
For many businesses, the anxiety about obtaining credit may be exaggerated. Some of the primary reasons for loan denials — a failure to articulate a clear business vision and a lack of attention to the financial and personal application requirements — can be easily overcome. As a business owner, that means you should think like a banker to prepare a compelling case for a credit request. While the basics — good collateral, a strong balance sheet, improving profitability and strong cash flow — are always important, the intangibles like the business narrative are also vital. Following the guidelines below will greatly improve your ability to access the credit you need to continue to grow your business.
Leverage advisors. A variety of business advisors can help strengthen your application and gain financing approval. Accountants, bankers and counselors from local Small Business Development Centers can support you in pulling together the necessary pieces of a persuasive strategy and a detailed financing plan. Avoiding the distraction of the credit application process while taking advantage of your advisors' strengths, will keep you focused on your business while you secure credit.
Create a compelling business story. An engaging, thorough and well-thought-out business story will give your banker greater insight into how you and your company operate, exercise management discipline and approach long-term plans. Lenders want to become comfortable with you as a business person, understanding who you are and what you know. Start with your background, education and business expertise, then integrate your understanding of the drivers affecting your industry and business. Be sure to incorporate narrative about your management style and commitment to the future.
Document your story with a solid business plan. A key element in the loan approval process is showing where your business is going and how you will accomplish your goals. A clear, written plan states how you will use the financing to increase profits and company value and provides evidence that you can create enough cash flow to cover regular loan payments.
Ensure professional and credible financial statements. A business generally needs to prove it has good liquidity and a positive net worth. Lenders want to see that you are paying attention to your operating expenses and making adjustments to maintain your profit margins. Equally important is how you showcase your business's financial strengths to a lender. Most business owners do not have financial backgrounds, so work with financial specialists like your finance team or accountants to prepare clear, complete balance sheets, income statements and cash flow statements. Many banks require financial statements for personal and business finances, so leverage your accountant and advisors for both. Non-standard or incomplete financial statements can derail loan approval.
Produce accurate and complete application documentation. Obtaining credit is not an everyday task for many businesses, and many leaders aren't familiar with the application requirements and level of documentation needed for credit approval. Your SunTrust Relationship Manager can assist you with your loan documentation and approval process. SunTrust offers its OneTeam ApproachSM that brings all the resources you need to support you and your business during the credit application process. SunTrust even has a dedicated Small Business Administration (SBA) team that specializes in working with your business to complete, submit and manage SBA applications.
Understand your available collateral. Most loans – except for some specialty SBA loans — need adequate collateral to secure financing. Collateral is basically any asset you have that can be pledged to protect the interests of the lender and used as a source of repayment if you default on the repayment terms. Acceptable collateral items can include business assets like equipment, vehicles or real estate. It can also include more liquid or saleable assets, such as cash, investments or personal real estate.
Commitment. Lenders want to know that you are committed to the deal and have made an equity investment as part of the process. The financial information mentioned above can paint a perfect business picture; however, your banker needs to know you and trust you. Personal financial records, situations in the past that show your ability to cover other expenses, examples of how you have moved the company forward through challenging situations and your investments towards your business can impress your banker and help move the loan process forward.
Working relationship. Relationships between bankers and businesses take time to develop. You should consistently be thinking about how you can include your banker in your business — not just when you find yourself in need of credit. Share your plans and your successes along the way, before you need a specific credit product. Make sure your bankers know you will come to them for advice on a wide variety of financial issues, not just to purchase services.