Article by Roger Schlueter
Remember that Banks make loans to all businesses. Sometimes we forget about the Conventional Bank Loan when we are bombarded with Small Business Administration Loan Programs and FHA Loan Programs. Banks still provide 90% or more of All Financing for Business Loans to Small, Medium and Large Business.
Your local Bank is the place to start but when looking for a Business Loan, look at at least three to four Banks to make sure you get your message across. Every Bank has it’s Favorite Types of Loans and Quirks in the Lending Process. I worked for the most conservative Bank in the St. Louis Market but we were not allowed to tell people that we did not do loans to Restaurants, Churches, Recreation Type Business, and Startups. The management would prefer that we took the application and turned the loan down. That was the hardest part of that job because everyone in Lending wants to Lend. To just turn the loan down, because of the type of business, is just pure stupidity.
Most Banks look at two main ways to repay the loan. The First is the Cash Flow Available to Repay the Loan. The Second Way Out is Selling the Collateral and Paying the Loan Off. This sounds simple enough but the Bank wants to obtain the most advantage that it can. This will start with the Down Payment. The Bank wants as large a Down Payment as it can get. At least 20% but this can be increased if the Bank thinks you have the Cash or if the loan is considered a riskier loan. The Terms of the loan can then be adjusted to increase the advantage to the Bank. This will start with a higher and/or Floating Interest Rate but can be a Shorter Loan Term. The Collateral is the Next Condition to Increase the Banks Comfort Level. They want as much Collateral as they can get and (No Matter What They Say) will never release any of the Collateral until the loan is paid off.
You as a Borrower should always look at a Conventional Bank Loan First and if the Bank needs any additional security by means of a Loan Guarantee or a Public Program of some sort, he or she will tell you. They may try to turn the loan down first, so at the end of every Bank Loan Presentation, Always tell the Banker, if he needs to go through the SBA or some other sort of Public Loan Program, you are O.K. with it.
Please refer any questions or comments to the Blog or to roger@rogerschlueter.com