SMALL BUSINESS SMARTS

 
 By Steve Doss, Wells Fargo’s SBA Regional Manager for the Southern California Market
 
 
September 14, 2011 (San Diego) -- “What does it really take for a small business owner to get a loan from a bank today?” It’s one of the top questions our bankers hear – and I would like to share our answer to this question.
 
  
 

 
According to the latest Wells Fargo/Gallup Small Business Index – our quarterly survey of small business owners nationwide – cash flow and revenue are key concerns for small business owners today. And more than one in three small business owners (34 percent) rated getting credit was “somewhat or very difficult.” Many business owners entered the Great Recession carrying high levels of debt. As consumer spending dropped, sales declined and those business owners had a harder time obtaining credit.
 
While small businesses continue to face challenges in an uncertain economic environment, today a significant number of small businesses in San Diego, CA and elsewhere are getting loans.  At Wells Fargo, we saw a modest increase in loan demand in the first half of the year. The businesses that are applying for loans today are stronger than they were a year ago, and as stronger businesses come to Wells Fargo for loans, we are able to say “yes” to more small business owners.
 
So to help even more small businesses join those who are hearing “yes,” we’d like to share with you the five things small business owners need to know when applying for a small business loan or line of credit.
 

•          First – Show that your business generates steady cash flow. Cash flow is a key indicator of a business’ health and its future prospects. When you can show reliable cash flow for your business, your bank can see that you have the resources to pay for new loans.
•          Second – Make sure your current debt load is manageable. Your bank wants to make sure your business has the ability to take on additional debt and is in a strong financial position to manage its debt payments.
•          Third – Maintain a good payment history. Before extending credit, a financial institution needs to be confident a business has the ability repay. Your payment history provides an important record of your ability to responsibly pay down debt. Obtaining a debit or credit card is a good way to begin building a payment history for your business. Your bank can then become more familiar with you, your business, and your payment history, which gives it more information to evaluate when it’s time to apply for additional financing.
•          Fourth – Demonstrate business acumen. Successful businesses reinvent themselves all the time. Your bank wants to see that you anticipate potential challenges and have the management skills to overcome obstacles and pursue growth opportunities. Have a business plan that addresses the major challenges your business may face.
•          Fifth – Build a solid relationship with your banker. A long-term relationship with your bank – both business and personal accounts – will give you the opportunity to show how you manage your finances as a creditworthy business owner. 
   

If your bank has a concern that makes it unable to approve your loan, another option is to contact one of the non-profit groups in the area focused on offering capital to small businesses that are not able to qualify for a bank loan or line of credit. 

Here’s one final tip, if debt, cash flow or payment history are the barriers to securing a loan for your business: take a good look at your business model. Can you identify new revenue streams for your business? Do you have opportunities to control costs?  Are you able to improve profitability through changes in product mix, pricing or staffing?

Talk to your banker – he or she may help you consider all the alternatives that will improve your business and the likelihood of getting to “yes” on your next loan application. Also, visit Wells Fargo’s Business Insight Resource Center (www.wellsfargobusinessinsights.com) to access additional videos and articles with more information on how to qualify for a loan.