How do I choose the right bank for my small business loan?

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Answered by: Brad, An Expert in the Small Business Finance FAQs Category
Finding the right bank for your small business loan can be a challenge for the first-time entrepreneur. The bank your family uses for its personal banking may or may not be the right fit, depending on the needs of your company and the lending policies of your bank. Here are some tips on how to find the right bank for your small business:

--Start with banks or bankers who know you

Sometimes, the simplest option is the best option. So-called "relationship" banking got its name for a reason: the safest, most attainable loans for small businesses and banks are based on a strong relationship of mutual trust between the lender and borrower. Obviously, banks will scrutinize your personal and business finances very closely when evaluating a loan, but sometimes having the right advocate can make the difference between a yes and a no.

Think about your experience with your current bank. Who do you talk to when you have a problem with your account? Is there a branch nearby where you can make deposits conveniently? Is the person ultimately responsible for making decisions on your loan located at the local branch or halfway across the country? As your business grows, the convenience of dealing with these types of day-to-day account issues will play a big part in your satisfaction with your banking relationship.

If you have an excellent working relationship with a banker who has known you and your family for many years, that banker should be able to let you know all about the bank's experience in working with businesses like yours. If so, you're well on your way! For many first-time entrepreneurs, however, you may rarely, if ever, deal with actual bank officers (and no, the ATM is not on the loan committee). If your instincts tell you that your business is a guppy and your bank is oriented more toward Wall Street whales, it may be time to broaden the search.

--Talk to other small business owners

Who do you know who owns a small business? From dry cleaners and fast food franchisees to accountants and lawyers, small businesses are everywhere. You probably already know several people who are responsible for dealing with banks on behalf of their small businesses. A few may even have taken out a small business loan on behalf of their company and are familiar with the bank's lending process from the customer's point of view. Learning from your peers who have been there before can be very helpful in identifying banks that go the extra mile to help small businesses.

--Search the Web for information on SBA loans

The Small Business Administration (SBA) is a popular source of loans for small businesses. The SBA doesn't lend money directly to businesses; these loans are provided by your local bank and guaranteed by the government against the risk of default. You will have to fill out some additional paperwork in order to qualify for an SBA loan, but most banks have at least some experience in dealing with SBA regulations for small business loans. Many banks have specific information on their company websites about their SBA lending procedures, so if you believe you may be interested in this type of loan, check with the banks you're considering to make sure they participate in this program.

Finding the right bank for your small business loan may take a little extra work up front, but it's a decision to be taken very seriously in mapping out your business plan. Regardless of whether you pursue a small business loan, your banker will be a crucial member of your small business's team of advisors, and building a strong working relationship now will make a big difference down the road when your small business needs funding to grow.

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