The bank said 'No.' Now what?
You have options, even if the bank turned down your loan request:
• Your sister's wealthy husband, if you're sure you want to do business in the family - with your brother-in-law.
• Credit cards, but be aware of their rate structures.
• Sell part of the company to outside investors - angels or others willing to invest in small businesses. Keep in mind that investors will be looking for a return.
• A different bank.
Or, before you make a date with your banker, review the thoughts here from two financial experts: Will Grosch, senior vice president at Wheaton Bank & Trust, a Wintrust bank, and Leif Jensen, president, Leif Jensen & Associates Ltd., an Elk Grove Village CPA firm.
"I'm telling clients they probably need (to deal with) more than one bank," Jensen says. In that context, he notes that "(Many) banks don't like to do small deals. It takes as much paperwork to get a $10,000 deal done as it takes for a $10 million loan.
"It's harder than hell" to get a small loan approved.
Bankers may not like that characterization, but Grosch agrees at least to the extent that "different banks have different appetites for loans below $100,000."
That doesn't mean you're out of luck if you need a smaller loan; it means you should take time to understand the lending community. "You have to understand how banks look at a (potential) loan," Grosch says.
He explains, for example, that larger banks are likely to blend an algorithm and credit score rather than go through an underwriting process on smaller loans to determine "Yes" or "No." The problem: "There's not much latitude for the borrower," Grosch says.
If the response from your first banking choice is that your loan "doesn't fit our model," Grosch suggests "It might be worth talking to another bank."
Optionally, he suggests asking the business loan officer if there's another way to get your loan approved, perhaps talking to one of the bank's personal loan officers who might be willing to wrap a home equity loan into the process - if you qualify.
A smaller bank, Grosch says "is more likely to underwrite the loan before reaching a decision." The underwriting process is more costly, but smaller banks are sometimes more willing to work with a borrower and look for ways to get a deal done, Grosch says.
Know your options. For some borrowers, Jensen says, "SBA loans make all the sense in the world." Grosch notes that Wintrust Financial Corp. has an internal group that manages SBA 7A loans.
Among the uses for SBA 7A loans are working capital; inventory and receivables financing; and real estate and equipment. SBA 504 loans, structured differently, are used basically for real estate and capital equipment financing.
Other financing options are factors, who basically lend on a company's receivables; leasing companies that will lease for acquisition; and non-owner personal guarantees.
© 2017 Kendall Communications Inc. Follow Jim Kendall on LinkedIn and Twitter. Write him at Jim@kendallcom.com. Listen to Jim's Business Owners' Pod Talk at www.kendallcom.com/podcast.