Small Business Loans: What Does Your Bank Want to See?

Wednesday, March 22 at 07:05 AM
Category: Business Banking
Starting a small business is no easy feat for a multitude of reasons, and one of the largest hurdles for many entrepreneurs is securing funding. The 2016 Kauffman Index of Startup Activity* is a comprehensive indicator of new business creation in the United States and shows start-up activity continued to gain momentum in 2016, following the upward trend that began last year. In short, the latest recession is behind us, new business activity continues to grow and these new ventures need funding. Your local bank can be a great resource to help finalize your business plan, and put you on the road to securing the money you need. Arvest Bank shares three things entrepreneurs need to stand out to potential lenders. 

1. A thorough, yet realistic, business plan 

A business plan is a crucial part of an entrepreneur’s lending ask, and banks will want to see a comprehensive plan for the creation, operation and success of the business. An industry analysis is needed to determine if a prospective company is in tune with the needs of the area, and if there is enough market share available to be profitable. 

The business plan should also include a market analysis of the prospective customers and their spending habits. Also, who are the competitors in the market and what is your businesses point of difference that will enable you to be competitive? 

2. Honest financial projections 

Realistic financial projections are a necessary point that banks will review intently. Your financial projections should not be inflated beyond industry averages. Bankers will easily recognize this “stretching” of the financials, and would rather see that you are realistic about the time and commitment needed to grow a business. A good place to start is to assess industry standards and see how your company would compare to the current performance of businesses already in operation. In addition to profit and loss projections, banks will want to see a plan for anticipated cash flow, as timing and delays play a big role in managing the finances of an organization. 
Financial institutions may also prefer that you list a secondary source of repayment in the event that your business does struggle financially. Banks have to protect their assets with every loan, so proof of savings, collateral, or a strong guarantor will strengthen your request for funds. 

3. Stakeholders and business resources 

When a plan is under review, proof that the entrepreneur has stakeholders who know the business, and resources to guide them, is extremely beneficial. Providing a lender profiles of the business partners, investors, and management team to ensure that the business is in the hands of people with a history of successful experience can also be an advantage. Listing resources such as the Arkansas Small Business and Technology Development Center at UALR also demonstrates to lenders that you have done research and know where to turn for guidance as you grow your business. 

Entrepreneurs should know their industry, create a detailed plan for reaching their targets, outline the financial plan for success and have a team of players ready to work to make it all happen. Banks and lenders want to see their small business clients thrive, and will work with them to make sure the outcomes are successful for everyone. 

Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution

Tags: Arvest Biz, Business Banking
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