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5 Tips for Landing Your First Bank Loan

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5 Tips for Landing Your First Bank Loan
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There are many reasons to take out a loan for your business, from securing a mortgage to having credit on hand to cover unexpected expenses. While the prospect can seem daunting, it doesn’t have to be—particularly if you have insight into the process before starting out.

As a business banking expert with U.S. Bank who specializes in lending, a central part of Jay Nelson’s job is to help small-business owners determine and secure the best type of loan for their needs. Below, he shares five strategies for making the process as effective and seamless as possible. 

1. Ask about lending options.

Small businesses, even those that are quite new, have a variety of lending options available to them, Nelson says. This includes applying for a regular business loan, which operates like a consumer loan, but for business expenses. It can be a good fit for companies looking to purchase physical assets, such as equipment or office supplies. 

For short-term borrowing needs—meaning you have a plan to repay the amount within 12 months or less—Nelson often recommends applying for a line of credit. A major benefit is that its open-ended, he says. You can open a line of credit for your business, pay it off, and then open it again, keeping the cycle going “as long as you need to during the draw period.” 

Applying for a business credit card can be a good option for making smaller purchases, such as travel and everyday expenses. “Credit cards do serve a purpose even though the interest rates may be higher than those for a loan or a line of credit,” Nelson says. 

If a business is new without a credit history, traditional bank financing may be out of reach. In certain cases, Nelson recommends owners apply for personal loans, transitioning them over to business loans once their company has established itself. 

2. Know how you want to spend the money and how you plan to repay it.

Choosing the right type of loan for your business depends largely on what you plan to spend the money on, when you anticipate you’ll be able to pay it back, and whether the expense is recurring or a one-time purchase.

Nelson often recommends taking out multiple forms of loans to meet specific needs, such as taking out a long-term real estate loan to rent office space in addition to opening a line of credit to handle recurring expenses.

3. Gather the necessary information.

To approve a loan, your banker is going to need your business’ financial information. This includes tax returns—potentially going a few years back, depending on the size of the request. Your banker will also want to see internally prepared financial documents to ensure the information aligns with what’s stated on the tax returns. 

As an owner, also be prepared to share your personal financial documents, including personal tax returns and financial statements. The bank will be on the lookout for “any debts owners have that could have a bearing on the business loan itself,” Nelson says. 

Despite popular belief, securing a loan does not require perfect credit. “There’s a big range,” Nelson says. Yes, good credit is preferable, but “there might be mitigating factors that a bank looks at and says, ‘we still want to get this business the money it needs to grow.’” 

4. Consider applying before you need the money.

Nelson often hears from owners who haven’t considered taking out a loan because things are going well. “There’s another way to look at it,” he says. 

Often, it’s in a business’ best interest to apply for a loan proactively when momentum is trending upwards. Not only will the application process be easier, but it provides a financial buffer should your business hit unforeseen difficulties. Waiting to apply until those circumstances actually occur can make it more difficult to secure a loan when you need one the most. “When things are going well, that’s really the time to apply for a line of credit,” Nelson says.

5. Maintain a strong relationship with your banker.

Nelson views his job as understanding clients’ stories and communicating them to the underwriter. “Think of your banker as a business partner or valued advisor,” he says. “Let them know what is happening on a regular basis.” A good banker will ensure lines of communication remain open. “Make sure you stay in touch with your banker, so that when you are ready to start a loan application there isn’t a lot of catch-up that has to happen,” Nelson says. 

He likes to tell his customers that, at minimum, they’ll hear from him every three months. If they’re going through a transitional period and need more frequent contact, he urges them to let him know. He’s there to help. Bottom line: “Having a good relationship with your banker is going to make it a lot easier to go out there and acquire credit from the bank.”

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

Credit products are offered by U.S. Bank National Association. Equal Housing Lender. Deposit products are offered by U.S. Bank National Association. Member FDIC.

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