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Term Loan



Bankers tend to classify term loans into two categories:






  • Character. How have you managed other loans (business and personal)? What is your business experience?
  • Credit capacity. The bank will conduct a full credit analysis, including a detailed review of financial statements and personal finances to assess your ability to repay.
  • Collateral. This is the primary source of repayment. Expect the bank to want this source to be larger than the amount you're borrowing.
  • Capital. What assets do you own that can be quickly turned into cash if necessary? The bank wants to know what you own outside of the business-bonds, stocks, apartment buildings-that might be an alternate repayment source. If there is a loss, your assets are tapped first, not the bank's. Or, as one astute businessman puts it, "Banks like to lend to people who already have money." You will most likely have to add a personal guarantee to all of that, too.
  • Comfort/confidence with the business plan. How accurate are the revenue and expense projections? Expect the bank to make a detailed judgment. What is the condition of the economy and the industry--hot, warm or cold?

Use the following guidelines when selecting a business bank:

  • Ask friends where they bank and if they are satisfied.

  • Forge a relationship with a bank long before you will need a loan. You'll find out how they treat you. Get to know some folks at the bank on a first-name basis. Start building a relationship. Believe it or not, banks want to talk to you even if they cannot lend you money.

  • Scan your newspaper for evidence of who is making the kinds of loans you are seeking. Not all banks can be the best at everything. Some are better at business loans; some are better with consumer deals.

  • Visit two to four banks to find your fit. Be upfront; tell them you are considering a loan and that you are talking with other banks. Then listen to their pitch.


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