By Stefan Yablonski
Securing a loan for a new business can seem daunting at first glance.
How hard it is to get a business loan depends on how lenders judge your ability to repay the loan.
“It’s often more achievable than people think, especially if you plan and have the right support around you,” said NBT Bank senior business banking officer Benjamin Verrette. “As a banker, I often tell aspiring entrepreneurs that the loan process is mostly about preparation and partnership. Yes, lenders need to see certain criteria like a solid business plan, cash flow projections and personal financial history. These are all things that can be put into place with a bit of foresight and guidance.”
Lenders consider factors such as cash flow, time in business, credit score and more when determining whether to approve an application and in determining what interest rate they’ll offer.
It’s not about having all the answers right away; it’s about working with a team that knows the right questions to ask. So, while it may seem difficult on the surface, securing a business loan is often more accessible than people realize when you’re strategic and surround yourself with the right experts.
What surprises many first-time business owners is how much smoother the process becomes when they engage with a knowledgeable banking team early on, Verrette added.
When a business owner is preparing to apply for a loan, having the right documents can make a big difference in how smooth and efficient the process is.
For new businesses, you’ll want to have a solid business plan that outlines your vision, target market, competitive analysis and, most importantly, revenue and expense projections. Since startups often rely on an owner’s credit and financial standing, banks will look closely at personal financial statements and any personal or applicable business tax returns.
“There’s no one size fits all. They need to work with their ‘team’ — banker, lawyer, accountant,” said Ronald G. Tascarella, vice president, team leader of commercial lending for Pathfinder Bank, Oswego.
How hard it is to get a business loan depends on how lenders judge your ability to repay the loan, he pointed out.
“If you are the borrower, what is the right amount of risk you can take?
When you start a business you are taking a tremendous risk, putting everything out there,” Tascarella said. “We want to make sure it is the right thing to do for that borrower. On the bank side we look for collateral, how do we get some security?”
Is it easier for existing businesses to get loans?
“That’s a great question and the short answer is yes, it’s typically easier for someone who’s been in business for a few years with a proven track record. Established businesses can show historical financial performance, consistent revenue and often have assets or collateral,” Verrette said. “These items give lenders more confidence in the ability to repay a loan.
“That said, new business owners shouldn’t be discouraged. While it takes a bit more planning and preparation, getting a loan as a startup is absolutely possible. When you partner with the right banking team, they can look at the full picture. Not just what’s on paper, but the potential of your business, the strength of your business plan, your industry knowledge and your personal financial profile.”
Experience helps, but with the right guidance and preparation, new entrepreneurs have more opportunities available to them than ever before, they agreed.
Being in business for months or years means that you have a track record that you can show to a lender, Tascarella said.
“That shows you have a history of consistent sales and good management,” he said. “The more time your business has under its belt, the more likely it is that it’ll remain in business long enough to repay the loan.”
“One of the most important tips I can give to any new business startup is to surround yourself with the right team from the beginning. That includes not only your internal staff, but also your external partners — your banker, accountant, legal adviser and even mentors in your industry,” Verrette said.
When it comes to launching a business, there are countless moving parts — financing, cash flow management, and strategic growth decisions. Trying to figure it all out alone can be overwhelming and that’s where having the right team makes all the difference, according to Verrette.
“We see maybe five to 10 [startups] in any given year. They are difficult,” Tascarella said. “The ones that are more successful are the ones that get going, get a little traction. They get a little money, they fine tune the business model, maybe a smaller scale. They come to the bank when they have a little bit of growth; sales are increasing, they want to hire more people. It gives the bank something to loan against instead of the business model. We want to give the borrower the best opportunity to be successful.”
