How to get a bank loan: Know the language

You'll have a better chance of getting a loan from your bank if you understand the banker's sometimes arcane language.

Rosetta Stone can't help, but a good accountant can.

Small business owners, especially startups, often “don't have the right understanding of what a bank can do,” says Greg Dowell, managing partner at Bass, Solomon & Dowell LLP, a Palatine CPA firm. “The bank is your lender, not an equity investor.”

That's a huge difference. “Bankers want to lend on one of two things — receivables or inventory. Sometimes equipment. The banker is interested in being paid back.”

Bankers always have wanted to get their money back, but a regulatory tightening of lending rules following the near financial collapse in 2008 has banks still on a short tether. Consequently, it's worth paying attention to comments from Larry Jones, vice president at First State Bank, St. Charles, one of 21 locations of Mendota-based First State Bank.

Business owners “don't know how to ask for money,” Jones says. “They must understand the nature of the loan business' requirements and be aware of how the different loans work and cost.”

Among the different loans Jones lists are real estate loans, including the SBA's 504 loan program; accounts receivable; construction loans; and work-in-progress loans. If you don't understand the differences, which for a non-banker isn't especially surprising, “Go to your accountant for some help,” Jones suggests.

Typically, “The business owner has something he enjoys and thinks he can make money with — but he doesn't know how to manage the business,” Jones says. “A loan officer will be able to figure out whether the business owner knows his business.”

When hopeful business borrowers “come in, meet with a commercial lender, lay out their plans for the business and say, ‘I need $100,000,' it's the loan officer's job to ask, ‘Why?'”

Jones seeks a stronger answer than, “So I can grow.”

Although a sensible presentation about the business is a logical part of a request for funds, numbers count. For example, “Your P&L (profit and loss statement) must indicate an upward projection,” says John Lafferty, president, CFO-Pro, Naperville.

Among Lafferty's thoughts on what to take to the bank:

* A short business plan that describes what you're trying to achieve. If growth is the intent, the plan should explain how you will reach that goal.

* An explanation of staffing costs that will be necessary to support growth.

* Anticipated revenue streams, with assumptions fully explained and market data that support projections.

* Competitive factors.

* Details on margins and overhead.

Lafferty has more, but that's a decent sample of the information he says bankers want to see.

Dowell “will counsel (firm) clients before they go to the bank,” as will Lafferty. Illinois Small Business Development Centers are another good source of support. So is SCORE, SBA-affiliated retired business executives committed to counseling.

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