Let’s start with an interesting and informative anecdote.
Deborah Carney, a self-employed author and internet marketer, posted a note on her Facebook profile regarding her last attempt at getting a car loan. The bank made her crazy with tons of paperwork requests because she is self-employed. This went on daily, for two weeks. Finally, on her birthday last year, the bank told her to come in and sign her loan documents.
When she came in, not only was her loan approved, but it was done so with a lower interest rate—her payment dropped by per month. Why? Deborah sent them to her author’s page on Amazon, which finally convinced the bank she was a solid business risk.
When it comes to getting a loan, it’s sometimes easy to not realize that the process is changing. From alternative lenders to established banks, the loan process is evolving to address the needs of borrowers who don’t fit the traditional loan applicant profile. If you’re self-employed and looking to get that first business loan, follow these tips to make sure you find the bank that fits your needs.
1. Make Sure the Bank Understands What You Do
Not everyone will have a busy author’s page on Amazon, but you should have a clean, clear website that defines your product or service. Before finding the perfect bank, make sure your business looks established and prosperous and that the bank understands what you do. Submitting a link to your professional website or positive online reviews may make all the difference.
2. Back It Up With a Detailed Business Plan
Next, write a business plan. A formal business plan is always better, but below is a one-page business plan template to get you started.
3. Prepare Your Business’ Financial Statements
The third step is to prepare your financial statements. If you’re in business, there is no excuse for not having a bookkeeping system in place. Without it, no lender will take you seriously as a business risk.
If you haven’t done it yet, set up your business on QuickBooks. Quickly enter your data for the year. Summarize all your deposits, if you must. Do the same with your expenses if you have them in categories. You can always enter the details later and remove the summary entries. Being able to show a bank professional-looking financial statements helps your cause.
4. Consider Preparing Your Personal Financial Statements
If your business shows a tax loss, consider showing your potential banker copies of your bank statements. Write an outline of your cash flow, showing how much money the business pays towards your living expenses—rent, utilities, car payments, vehicle operating expenses. That helps them see that you really can afford to make your loan payments.
Your personal financial statements will let your prospective lender see how much money you deposit each month, and how high your average monthly balance usually is. Why would you want to do this? You want more than just a loan—you want to establish a business relationship with your new bank. You’ll get a better deal.
Having these preliminary things done will help you look good to a potential lender.
5. Ask Your Potential Lender the Right Questions
With all that in place, now that they have a good idea about you, it’s time for you to get an idea of who they are. What should you ask your new bank? Here is your checklist, and feel free to add other questions about issues that are important to you.
Your questions should address access. This might begin with “When working with your institution, …”
- “…will I have access to a personal banker—one that gets to know me, and vice-versa?”
- “…can I call customer service at hours that are convenient for me?”
- “…will I be able to do online banking?”
- “Make deposits by scanning my checks with my smartphone?”
- “See my statements online?”
- “Get copies of deposits and cancelled checks for at least three to four years?”
- “Are there extra fees for this?”
- “Or are there fees for paper statements?”
Then there are questions that pertain to how much leeway a lender can provide. These questions might include:
- “What is the maximum loan you can approve for me, without going to committee?” (Bank managers have a certain level of authority on their own discretion.)
- “With what level of loan balance do you need collateral?” (If it’s not a car or equipment loan)
- “Can I get a loan without any prepayment penalties? When I have extra cash, I like to pay my loan off.”
- “What is the best interest rate you can give me?”
- “Can I get a better rate if I have an account with your bank?”
- “Can I get a better rate if I have automatic payments coming from my bank account? And can I determine the due date of each payment?”
- “Is there anything else I can do, or show you, to bring the interest rate down?”
Also, don’t forget to ask about fees.
- “Since I want to open a business account with you, what are your minimum monthly fees for my business account?”
- “Do you have ATM fees?”
- “How can you help me get all or most of these fees waived?”
- “What minimum balance must I have?”
- “Can I link some savings or investment accounts to get fees waived?”
- “Do I get credit if family members have accounts with you?”
For folks who have more complex businesses, with employees, wire transfers, high balances and more, there are many more questions you can and should ask. We will cover those considerations in future articles.
In the meantime, expand your banking search. Don’t just look at brick-and-mortar banks, or online banks. Look at credit unions, as well. They generally offer excellent loan rates and low fees—perhaps even no fees at all. Whatever your choice, make sure you find a bank that not only offers you good repayment terms, but is responsive to your needs and treats you with respect.