Greenlighting Your Green
Local lenders reveal what it takes for them to approve a business loan.
If you listen closely, you can hear the squeak of the spigot finally turning to ease the drought in small-business loans. According to the latest numbers from the Thomson Reuters/PayNet Small Business Lending Index, borrowing by small businesses in the U.S. recently increased to the second highest level in more than two years.
All those plans for commercial expansion and improvement are no longer being put on hold, nor should yours be, but securing a bank loan—financing on the most favorable terms available to most small firms and startups—requires more than ever that business owners present themselves and their businesses in the most convincing manner possible.
We talked to county and regional bank lenders to find out how small-business and new-venture owners can avoid common applicant pitfalls to gain the capitalization they need for their new—or newly expanding—business.
Tell a good story. “Give us a narrative compelling enough to understand that you know what you’re doing and what you’ll do with the money,” says John Ritacco, president and CEO of Community Mutual Savings Bank, with corporate offices in White Plains and branches in Mount Vernon, Eastchester, Greenburgh, and Mount Kisco.
“When you meet with our loan officers, tell us what your business has done, how it has changed, and where it’s going,” Rittaco advises. “Be clearest on what you need the money for and how the company will prosper and pay back the loan as a result.” Of course, just spinning a great yarn won’t be enough. You'll have to provide a well-prepared, accurate application. “You’ll need good professional advice from a CPA or financial planner," he says. "It’s money well spent.”
The kind of business you’re in matters. “We look to start-up companies in state-of-the-art industries, in technology, or healthcare-related fields.” But any worthy enterprise can qualify for a loan. “We just helped a martial arts school expand," Rittaco reports.
Sweat the details. "A lack of detail in your loan application can be a red flag,” says Frank J. Celentano, Jr., senior VP and regional manager for Business & Professional Banking at Webster Bank in White Plains. “One common mistake is not matching the loan purpose to the correct term,” Celentano notes. An applicant may ask for a line of credit when a term loan may be what’s called for. Returning forms for corrections adds delays.
Be smart about debt. “The first thing we look for is your credit experience,” says John Kraus, senior VP and senior commercial loan officer for Mahopac National Bank, which has 16 branch offices in the lower Hudson Valley. “We want to see at least three years of personal and business debt management. We want to know that business owners carry sufficient financial acumen. That can be determined by their credit rating." Know your FICO credit score, which can vary according to which of the three credit bureaus—Equifax, Experian, or TransUnion—is making the assessment.
In general, bankers are looking for credit ratings in the 700s, but applicants with lower scores can compensate by accepting less favorable financial terms. Paying any bank’s added interest premium will still cost less than floating business debt on plastic. "We offer revolving lines of credit with short-term rates in the four- to six-percent range," says Kraus. "You can’t get that with a credit card.”
Put up or shut up. You’ll have to put some serious skin in the game—much of your own—to demonstrate commitment to your enterprise. “Expect to provide adequate collateral—assets or real estate as a form of guarantee—and have some capital invested as well,” says Regional President of M&T Bank Paula Mandell.Throughout the economic downturn, M&T actively lent to small businesses. “We never pulled back,” notes Mandell.
If you take a few extra steps to reassure a well-funded loan committee, it could pay off in an approval. Mandell recalls a small firm with a patentable idea and an entrepreneur whose business experience was limited. “He pulled together a board of very experienced business people, so that the bank could feel comfortable with his good, solid advisers,” she says. “The company is doing very well now.”
Show your survival skills. “Everyone is coming off of a bumpy road,” says Carl Capuano, senior VP and director of Commercial Lending for Provident Bank. “We look to companies that have successfully endured economic difficulties and companies that have been in business for an extended period of time.” But even if this was your first business downturn, you’ll want to share the lessons you’ve learned with the bank. “People who understand their businesses will build in a margin for future economic conditions.”
A bank has turned down your business loan request? Try again at another institution—after re-working your request. “If a bank rejects you, it often won’t tell you why,” says business adviser Louis Scamardella of the New York State Small Business Development Center (SBDC), a no-fee state-funded counseling service for business owners and entrepreneurs. Scamardella, based in White Plains, advises more than 100 Westchester businesses every year. “They come to me because their applications need work."
Tarrytowner Steve Ditlea began his freelance business journalism career as Popular Computing's small-business computing columnist in 1982.
Think Outside the Bank
Alternative local loan financing can assure your business capital needs.
So maybe your firm is not that bankable. Fortunately, there are non-standard financing options for entrepreneurs from innovative local institutions and programs.
Microloans. If you can make good use of a $35,000 business loan or less (to as little as $1,000), you’ll want to try the SBA-designated microlender for the lower Hudson Valley, Hawthorne-based Community Capital Resources. A not-for-profit Community Development Financial Institution (CDFI), this lender works with the almost-bankable (typical FICO score in the mid-600s). And restaurants are welcome to apply. “Almost a quarter of our business loan portfolio is to restaurants," says Executive Director Kim Jacobs. “In four years we’ve only seen one restaurant file for bankruptcy.” Term loans are available for up to 60 months, with the SBA-set interest rate currently at 7¾ percent.
County/municipal loans. Government-supplied economic development funds could float your firm to its next stage, depending on your location. The Westchester Rockland Revolving Loan Fund was created specifically for small businesses denied bank loans. The City of Yonkers recently scored a grant from New York State to provide loans for businesses within Yonkers. In Peekskill, the Grow Peekskill Fund offers loans to local businesses at competitive rates for up to 25 years.