Traditional Commercial Loans
Traditional Lenders are commercial banks who are many entrepreneurs first stop when seeking funding for their businesses. Often, you have a history with these banks through personal banking and have established a connection with them over the years. Generally, commercial banks are looking for two to three years of historical business and cash flow performance. However, some banks may work in collaboration with the Small Business Administration (SBA) or United States Department of Agriculture Rural Development (USDA RD) for various loan products. While SBA and USDA RD don’t lend money directly to small business owners, they support the entrepreneurs by providing guarantees for loans made by partnering lenders. The SBA and USDA RD reduce risk for these lenders and make it easier for entrepreneurs to access capital. A guarantee can make it easier for small businesses to get loans.
Common Bank Loans
You may first want to visit the financial institution where you have your primary banking relationship. As noted above, it will be this bank that initiates the guarantee process with state and federal agencies, and it is the bank that is actually lending the money. Many lenders will have history with these guarantee programs, which helps them understand and explain to entrepreneurs. Without the expertise and commitment to economic growth of the commercial bankers of West Virginia, businesses large or small would have extremely limited options for obtaining money for their business needs. Your bank commercial loan officer will work closely with you in finding a source of funding that is appropriate for your financing needs, whether it is a direct loan from the bank itself or participation in a guarantee loan program with a state or federal agency. The loan officer also coordinates with the other sources of funding to help you obtain your finances in a reasonable time period and at rates that are suitable for your business.
Dun & Bradstreet offer a great overview of traditional bank lending.
Some of the most commonly used debt financing options are examined below.
Commercial bank loans don’t require entrepreneurs to turn over equity or company control. In general, banks prefer to make loans of more than $10,000. Banks like to see:
- Good credit
- A solid business plan with financial projections
- Ability to repay the loan
- Collateral
- Often times banks will require cash equity from the borrower
Line of Credit is an arrangement in which a bank extends a specified amount of credit to a borrower for a time period and generally should be paid down every year. A line of credit is best suited to help cover expenses that tend to fluctuate throughout the course of a year.
The Process
Once you’ve determined that a traditional bank loan is the right kind of financing for your business, you’ll need to package your financial information in a way that makes it easy for a banker to make a favorable decision.
At the most basic level, you will need to provide:
- Basic information about your business (See Plan Your Business)
- Basic information about the loan you are requesting (the specifics of how you will utilize the money to grow your business and attract customers)
- Financial information about your business (credit history, credit score, cash flow, business longevity, 3-year projections, etc.)
We highly recommend that you work with one of our network Resource Partners who are skilled in helping business owners prepare themselves to approach funding sources. Simply search for financing assistance in the Resource Navigator to find the right organization near you.
