Regional banks have a lot of ways to help your small business access capital

Catherine Arik 

In order to grow and thrive, small businesses need capital to fuel their operations and workforce. While current interest rates and economic uncertainty may have entrepreneurs thinking twice about their ability to access to capital, the truth is financial institutions — especially regional and community banks — are ready and willing to work with them to assist.

Regional and community banks are uniquely poised to deploy their deposits to support local firms. They help keep our communities and economies moving in a positive direction. That’s because they have economic knowledge about their areas and expertise in their markets that make lending more efficient to small businesses, farms and startups. Local bankers understand their communities and can be patient in working with small businesses to make sure they have everything in order to be ready to apply for loans.

To successfully prepare for working with a bank on a small- business loan, entrepreneurs can follow these six essential steps:

1. Start with a business plan. A business plan serves as a roadmap to guide your priorities, goals and measurable outcomes — and it need not be complicated. This document becomes your business card as you navigate the business world — whether it is the bank that may be considering your loan or the property manager who might lease space for your new or existing business. Agencies such as the U.S. Small Business Administration (SBA) and SCORE provide detailed information on writing a business plan. Remember that you need to be able to explain what your business does, its mission and vision as well as how you plan to get there. You need to be able to articulate it in writing, which brings credibility and commitment to your project. A business plan will include qualitative information as well as quantitative information that translate to the financial projections for your company.

2. Seek support. Consulting with someone who knows a particular industry or sector can be invaluable as you prepare to launch or expand your business. Support is also critical for entrepreneurs as they juggle duties, from bookkeeping to marketing. Identify knowledge gaps and seek out advice and training in areas where you are lacking. It’s also helpful to get general advice from a business incubator. Look for free consultations and virtual classes on a variety of topics that can help you scale your business.

3. Build your credit. Establish-ing a good credit history now will help you down the road as you apply for funding to your growing business. It’s important to remember that lenders make decisions based on the “Five C’s of Credit,” which are character, capacity, capital, collateral and conditions:

• Character: Character refers to your industry experience and personal credit history, including a demonstrated willingness and ability to repay debts. You can expect a lender to review the credit of anyone with 20 percent or more ownership in the business, because these individuals will be required to personally guarantee the loan.
• Capacity: Capacity is the business’s ability to generate positive cash flow and profit to cover business operations, including any debt service. You will be asked to provide documents to show the company’s historical and current financial situation.
• Capital: Capital is the owner’s cash or equity contribution to the business. The amount of capital required varies depending on the loan type. For example, an SBA 7(a) loan typically requires a minimum of 10 percent down payment of the total project cost.
• Collateral: Collateral refers to tangible assets pledged to secure the loan amount. If a business cannot repay its loan, the lender wants a second source of repayment. Both business and personal assets can be sources of collateral for a loan.
• Conditions: Lenders consider the local economic climate, your competitors, supplier relationships and industry trends that could impact the business. Conditions also describe the intended purpose of the loan. Is this a business startup, acquisition or expansion? Will the funds be used for working capital, additional equipment or inventory?

4. Consider different financing options. Growing your business takes capital, and there may be alternative routes to explore. A good lender can help you find the right loan product to match your goals and time frame. A few options to consider include:

• SBA 7(a) Loan. One of the most popular and versatile options offered by the SBA, the 7(a) loan is a good option for real estate-related purchases and equipment purchases, but can also be used for working capital; refinancing business debt; and purchasing furniture, fixtures and supplies.
• Business Line of Credit. Business credit lines can serve as a buffer for unexpected challenges or cashflow interruptions. Typically, you are allowed to withdraw funds up to your approved limit and are only charged interest for the withdrawn amount. After you make repayments, your funding becomes available again and you can redraw funds.
• SBA Microloans. As the name suggests, an SBA Microloan can help businesses with smaller loan needs. The Microloan program provides up to $50,000 for borrowers to purchase inventory, supplies or equipment, or to use as working capital.
• Business Credit Cards. While not always the most affordable form of funding, business credit cards shouldn’t be overlooked. They can provide access to quick funding and help you build business credit. Your ability to qualify for a small-business credit card mostly depends on your personal credit standing.

5. Come prepared. Arrive prepared to a lender meeting with a complete loan package and a compelling pitch articulating the strengths and weaknesses of your proposal. Make sure you understand and can explain the assumptions behind the numbers in your financial projections.

6. Don’t give up. The time it takes to process your loan request depends on a variety of factors, including how quickly you respond to a bank’s requests for information or documents. You can also avoid frustration by discussing expectations and deadlines early on when you meet with your banker. To help create a good experience and outcome, keep in contact with your banker and don’t give up if you encounter challenges or delay.

As you work to access capital for your business, remember that your banker can help tell your story in the best possible light and serve as your advocate to underwriters. As your banker learns more about your business, he or she can help you meet credit requirements and successfully apply for capital.

Catherine Arik is senior vice president and small-business manager at Zions Bank. She has more than 24 years of experience working with business owners on tailored solutions to achieve their goals.