5 Things You Should Know To Secure Lending For Your Small Business

Post written by

Jarred King

Jarred King is an entrepreneur, father, husband, and Swagger founder—not always in that order and depending on the day or cash flow.

If you’re a small business and you’re trying to grow, there are several tools at your disposal. You can grow your customer base, raise equity, acquire another business in your space or even develop a network of strategic partners. If you’re attempting to grow through debt (borrowing money from a lending institution), here are some things you need to know and how to increase your chances that a lender will provide with your funding.

Know Your Numbers

Before you get into what type of lending you need (line of credit, term loan, SBA loan, equipment financing, etc.), you first need to organize and prepare some key financial documentation that all lenders will ask for, regardless of your financial position and need. They include the previous three years of personal and business tax returns, a balance sheet and income statement from the last three years, a schedule of any current debt/liabilities (here is a template), a personal financial statement, your current yearly financials including a balance sheet and income statement, and a current accounts receivable report.

It’s also wise to develop a one- to three-year financial projection assuming you get funding. Remember, any lender is taking on risk when providing a small business with capital. Your past financials will frame the current level of risk while the vision will help paint a better picture of the upside and return on that investment. If you don’t understand your financials or aren’t sure how to answer any clarifying questions, it will inspire less confidence in the lender.

Cash Flow Is King

Unless your business has enough hard assets to cover the amount of funding you need (machinery, inventory, real estate), the lender will want to know your monthly cash flow. In other words, how much are your customers paying you on a monthly basis for your goods or services? The lender will compare that amount of cash flow against your monthly expenses. In an ideal world, your cash flow exceeds your expenses and is recurring, meaning that it’s consistent each month. In reality though, if you’re in the position of raising debt, you’re likely suffering from periods of great cash flow paired with periods of low or no cash flow. Lender funds are a great way to provide you with a runway to bridge those high cash flow periods. The better your cash flow, the greater the chances a bank will lend you money. If sales are slow or you suffered an extreme loss, your accounts receivable report will tell the story of what the next few months will look like.

Shop Local

Large retail banks like Wells Fargo, Citi and Bank of America are great for personal banking or large companies who need the scale of these institutions. Their online banking provides a great user experience for mobile banking, moving money between accounts, integrating payroll and handling the day-to-day needs of a business. Unfortunately though, they are too risk-averse to support the needs and volatility of a small business.

The better lending partner is a local or regional bank. They will often take on riskier loans, provide competitive terms and, in some cases, won’t require a personal guarantee. Smaller banks want to place bets on small- to medium-size businesses in order to strengthen their position in that community. They don’t have the number of deposits that a large bank will have, so in order to grow as a business, they must find revenue in the form of business lending. You will also typically get a quicker answer to your loan request by dealing with the decision maker and build an actual relationship with the bank representative.

Leverage Your Network

The first step in finding a banking partner should always be leveraging your personal network for relationships with the banks in your area. You will not only identify the best possible banks based on your situation, but a personal introduction could set you apart from other business competing for those same funds. In business, like in life, relationships are everything.

First, make a list of banks in your area. Then jump on LinkedIn and using, their filtering tools, search through your network for anyone who has a first- or second-degree connection to someone at the banks you've found. Ideally, you want to go as high up in the decision making process as possible (Vice President level). Make the introduction and set a time to meet with them so you can present your case and needs.

Start With The Bad News

In order to properly illustrate why you need to secure debt from a bank, it’s important to develop a narrative around your entrepreneurial journey, your business growth plans and how the bank's money will play an integral role in that success. My mentor gave me a great piece of advice: Start with the bad news. Like anyone entertaining a risky proposition, the bank will be waiting for the other shoe to fall. Instead of avoiding the potential risk, highlight the issues in your current situation and what you've learned as a result. Leading with the bad news does a few things to help. You establish that you understand the risk involved in lending your business money, you gain credibility through an understanding of your business and the market and, most importantly, you build trust with the bank.

Securing a loan, in whichever form you seek out, can be meaningful (and even lifesaving) to your business. It’s not without risk though. Rates are high, banks are lending at reduced rates and increasingly risk-averse institutions are slowing or freezing a process that used to be completed over a quick review of the financials and a handshake. If your business is growing and your reserve accounts are overflowing, do your future self a favor by building a war chest with at least six months of operating capital. Otherwise, get your financial documents in order and begin building relationships with banks in your area. You never know when you’ll need that lifeline.
