A bank loan is a great way to help entrepreneurs start growing their own business. On this episode of “The Heartbeat of Main Street,” Steve Strauss shares six steps to successfully obtaining a small business loan.
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Gregg Stebben: Welcome to “The Heartbeat of Main Street,” brought to you by ForbesBooks and Bank of America. Steve Strauss joins us to talk about six essential steps for getting a business loan. Steve is USA Today's small business columnist and also the author of 17 books, including the best-selling Small Business Bible. Steve, thank you for joining us.
Steve Strauss: Gregg, great to be here. Thanks for having me.
Gregg Stebben: This is obviously an essential topic, how to get a small business loan. You are, as I mentioned, USA Today's small business columnist. You're also a Small Business Community influencer for Bank of America, and you talk to a lot of small business owners and I suspect that questions about how to get a loan is often one of the things they ask you.
Steve Strauss: You bet. In fact, a couple years ago I even wrote a book on this very subject called Get Your Business Funded, because the good news is there are really a lot of different ways to get the money that you need for your business.
The best and most obvious is to get a bank loan, as we're going to talk about today, but there are others like crowdfunding and microfinance, even business-owned competitions that people aren't as aware of. But the good news is, there is money out there for you to start running and grow your business.
Gregg Stebben: So, of these first six steps, what's number one?
Steve Strauss: Number one is you want to create a relationship with your banker before you ever go get a loan. In fact, what I really want people to know is banks want to lend to you. They want to lend to you. That's their job. That's their business. That's their business model.
So, your job is to make their job easier, and the first way to do that is as I said: create a relationship with your banker. So before you ever go into the bank with your loan package, instead go into the bank and meet your small business banker.
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For example, Bank of America, who I do a lot of work with, who you mentioned, a couple years ago hired more than 1,000 small business bankers, and they're there to help you understand the banking process, understand the loan process, and understand what your loan package needs to have and how your business needs to look in order for you to get the funding that you need.
Gregg Stebben: I think what you said about it being the business of business banking to make loans is a really important point to make, because I think sometimes people feel like it takes luck to get a loan, but they're actually in the business of doing it, and that's an important thing to remember. So that's step number one. What's step number two?
Steve Strauss: Step number two is to understand how much money you need realistically. It's kind of like Goldilocks' porridge. You don't want it to be too little because then you're going to end up with a capital crunch before you even start. You don't want it to be too much because the banker who is well-versed in finances and books and spreadsheets will understand that you're asking for too much money and that's not what you want to do.
So you really need to think thoroughly through what it is you're trying to do, how much money you need to do what it is you want to do, and then go in with a loan package to ask for that proper amount.
Gregg Stebben: So, I've done that. What is step number three?
Steve Strauss: Number three is to get your personal credit in order. It going to be very unlikely that you're going to be able to go in and just on the basis of your business get a business loan, at least if you're fairly new to business. Often a bank is going to want to see a personal guarantee on the part of the principal, and so you want to make sure that your personal credit score is about 700, that your debt to income ratio isn't out of whack, that you have a great credit history, that you have a history of paying your debt back in time, on time, and in full.
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They're also going to want to know how long you've been in business and what your cash flow is like. But make sure that you get your personal credit in order so that if you need to give a personal guarantee or if you need to give collateral even you can do both of those things.
Gregg Stebben: We're talking with Steve Strauss about the six steps to get a small business loan. Steve, what is step number four?
Steve Strauss: Step number four is the one that we kind of talked about at the beginning. Now get your loan package ready. You've met with the banker, you know how much money you need, you have your credit in order, then you do number four, which is prepare your loan package.
You have to include your financials, projections, a business plan, leases, contracts, personal financial information. You're going to put all of that together in a package that you're going to give to the bank.
Gregg Stebben: Now, Steve, I'm really curious about steps five and six, because I would have thought we were done after number four when we got our loan package together. So, what's number five?
Steve Strauss: Five is an easy one, which is, you know, you submit and you wait. You may wait a day. It just depends on what kind of loan you're trying to get. It may be that you have to wait for a couple weeks for underwriting to do their job. But you're going to submit and then see what happens.
Gregg Stebben: I would imagine that if we did step number one correctly, which is create a relationship with our banker, then step number five, waiting, is a lot easier because we have someone we can go back to and check in with and say, "Is there anything else you need? How do you think we're doing? Do you think we're making the right kind of progress?"
Steve Strauss: Bingo. So instead of going in blind and hoping for the best you're going in with your eyes open and expecting the best.
Gregg Stebben: Yes, and having an advocate on our side.
Steve Strauss: That's right.
Gregg Stebben: Okay. So we're talking about how to get a business loan. We've now submitted our loan package, we're waiting to hear back from the bank. Let's just say because we did everything else correctly that we've now got our loan. What is step number six?
Steve Strauss: Number six is to repay it in full and on time, and even better, early. I mean the secret to getting an even bigger and better loan next time, meaning better rates, better terms, that kind of thing, is to be a good borrower. So, that means paying it back early. It means that you've done everything that you're supposed to do.
And if you do those kind of things, then you're going to have established yourself and your business as being credit worthy, and once that happens then the bank is going to want to work with you even more, and you're going to want to grow your business, and you're going to get another loan, and you're going to grow your business, and you will have created a great relationship and one that allows you to have the capital that you need accessible, and that's really is what makes a big difference for so many small businesses.
Gregg Stebben: I love the sound of having a bank want to work with me even more.
Steve Strauss: Right.
Gregg Stebben: So, let's walk through those six steps again really quickly as a recap. Step number one, start creating a relationship with your banker right now before you're ready to apply for a loan. Step number two, figure out how much you need, not too much, not too little. You got to figure out what the right amount is, and of course, if you have a relationship with your banker you can get some help there I would imagine.
Steve Strauss: Correct.
Gregg Stebben: Step number three, get your personal credit in order because that's probably going to be a factor here. Step number four, prepare your loan package, which leads to number five, submit and wait. And step number six, probably the most important because we do want the bank to want to work with us again the future ... Step number six, repay the loan back in full, on time, even early, because that will make it clear that you are a great business to lend to next time.
Steve, thanks for the great advice and steps for how to get a business loan. Where can our listeners go to find out more about you and get more of your great advice for small businesses?
Steve Strauss: Sure. You can always find me at my personal website, which is MrAllBiz.com. You can find me at USA Today, and I would also suggest that you come over to the Bank of America Small Business Community. They have lots of great information, articles, videos, tips, other experts, and you can find a lot of great, great stuff right there.
Gregg Stebben: As Steve mentioned, a great place to go for advice in addition to his website, USA Today, and of course checking out his best-selling book, The Small Business Bible. Visit the Bank of America Small Business Community. It's at BankofAmerica.com/SBC.