Ever gotten a bank loan? Me neither. So I sought out friends, strangers, and bank associates to tell me their stories -- and got very little response in return. It seems that few entrepreneurs are going that route today, favoring the "friends and family" approach first, followed by maxing out on credit cards or crowdsourcing their fundraising rather than approaching a bank.
But from the few responses that I did get, here are several handy tips for getting a bank loan in today's economy:
1. Get yourself together. You will want to know your credit score and should visit freecreditreport.com or some other agency that provides credit reports, if you haven't already. Gather up your financial statements and budget projection worksheets so you can figure out what expenses and revenue you will potentially have over the next two to three years. The more you know about your financial background, the better prepared you will be to answer questions about why you're at the bank, and why they should lend you money at all.
2. Understand the rules of the game. Before talking to your bank and its dozens of bankers, bone up on how it works; what you should look out for; and ask questions like crazy. Patrick Lewis of EditSalons.com said that when he went to get a bank loan, he was told several different things by several different bankers at the same bank. Even upon approval of his loan, he was thrown a curveball when they demanded even more information from him. Make sure you understand all the nuances so that there are no surprises by the time the loan is finalized.
3. Photocopy, photocopy, photocopy. Keep copies of every single document throughout the bank loan process. Bankers are human, too. They can lose paperwork, and if you give them your only copy, you may find yourself in quite a bind.
4. Find alternative lending. "If you're having trouble finding financing from traditional sources, contact ACCION USA, a non-profit microlender, to see if you qualify," says Jill Stephens, VP of ACCION Chicago. The microfinance institution is committed to bringing affordable small business loans to microentrepreneurs.
In regards to #1, the rules are always changing. Having approached more than several banks about this article, it was unsurprising but curious to me how many banks refused to respond in regards to a basic question like, "How does one get a bank loan?" Some PR departments sent me unrelated statistics and information apropos of nothing. They seem to be hiding from what this entrepreneur presumed was a straightforward, basic process to getting a bank loan. You can choose to skip the banks and crowdsource your fundraising on sites like peerbackers.com, kickstarter.com, or profounder.com. But no matter where I turned, I got the same advice from experts, experienced entrepreneurs and even bankers: check in with your family and friends first.
Jill Salzman is currently growing her third entrepreneurial venture, The Founding Moms, the world’s first and only kid-friendly collective of monthly meetups for mom entrepreneurs. Having built two successful companies, she launched The Founding Moms to connect mom entrepreneurs around the globe with one another.In her spare time, Jill enjoys kloofing, traveling to small towns, and erasing her daughters’ crayon artwork from the kitchen walls.