Whether it’s a start-up, an existing business or a would-be entrepreneur, one of the questions we are asked is "How do I get a loan from a bank for the venture?" And that’s perfectly normal because most small businesses need bank loans at some point.

There are no pat answers. Each situation is different. The process may vary from financial institution to financial institution. There are, however, some common requirements across the board.

Let’s start with the basics.

First, is the business plan. The bank will want to see a business. It addresses the type of business, location, customer base, competition, financial projections and cash requirements. This important document tells the banker whether you have done your homework and understand the business risk associated with a start-up. For instance, restaurants historically have a high failure rate.

Secondly, who are you financially? Do you have a good credit score? Bad credit can be a red flag to the bank. Have you maxed out your personal credit such as credit cards? High personal debt could point to a problem managing income and expenses. Do you have a personal net worth (own a house with a value greater than the mortgage)? This is a plus. Equity in a house is a source of security for a bank. How much of your personal finances are at risk on the venture? The bank is usually not willing to take on the entire financial risk on a business. Have you filed for bankruptcy? The circumstances will be of interest to the bank. It may be an indication of your money management abilities and the risk you pose.

Thirdly, what experience do you have? Prior experience in successfully managing, owning or working in a related business is a positive. Is your education background geared to the particular business? This is of particularly important if the endeavor requires professional expertise.

Fourth, what is the purpose of the loan? If it is to be used to buy equipment, a building or inventory, the bank may look at the loan more favorably than if it is to be used for starting the operation.

An existing business has some of the same requirements by a bank. Credit scores, type of business and business plan will be high on the list. Loan history is of particular interest, including timely repayment. The bank will be also interested in the nature of the loan, purpose, collateral and plan. Be prepared to provide financial statements and copies of tax returns to support the history and projections of the business.

Banks my look to have both the personal and business accounts at their facility. This is an opportunity to provide full-service banking. More importantly, small businesses sometimes mingle personal and business finances. Using business cash for personal debt and vice versa is one example. This is never good practice. It can cause untold problems from violating loan covenants to potential tax issues. The bank wants the opportunity to monitor both accounts to protect its loan.

While not every bank will require the above items, most will require the majority of them. Banks take risk in making loans and they only make money when the principal and interest are repaid. Developing a working relationship with a banker is an important step for any small businesses. Loan officer have to know the individual and the business when making the assessment.

Remember, you have to have your plan together, be prepared to sell the concept, defend it and have a history that supports a favorable lending decision.

Currently, local lenders view small businesses favorably. There is competition between banks for your business, but no bank wants bad business. SBA (Small Business Administration) guaranteed loans offer an alternative for the bank’s risk. Again, the SBA requirements will closely mirror those of the bank.

SCORE is always interested in reviewing your plan and offering suggestions to get you ready to meet with the bank. There is no charge for our business counseling services and everything is strictly confidential. Call 330-379-3163 for an appointment with one of our experienced counselors or contact us via our web site at http://akronscore.org.