The best way to determine whether or not to consider a particular bank is to find out the answers to the following 10 questions. Use them as your starting point, but know that you should dig deeper if you can.
1. Is the bank healthy with strong financials? Given today's economic climate and the recent dramatic rise in bank failures, you must check the health of any bank that you seriously are considering. (For more information on how to do this, read this post.)
2. Does the bank have a business division focused on lending to small- and medium-sized companies? What percentage of their business is geared to this market? The easiest way to find banks with a business division is the old fashioned way. Just look to see what banks have a phone number for a business division in their yellow page advertisement. I know, this seems old school. But in my experience, the information on bank websites can include a lot of hype. You'll get much more information if you call and get connected with the right person in the business division so that you can ask detailed questions.
3. Is the bank on the SBA's current list of top small business lenders? This information is available from the SBA's most recent study on small-business lending activities. In addition, Entrepreneur Magazine created an excellent website on the banks that are the most business friendly, broken down nationally and by state.
4. Is the bank familiar and comfortable with your industry? Does it lend to your type of business? What industries does the bank specialize in? When you contact a loan officer by phone, tell her what your company does, how long you've been in business, how fast you're growing. Tell her that you're looking for a long-term relationship with the right bank and be specific about what you need, a $X line of credit, a term loan of $X, etc. If the bank doesn't work with companies in your industry, ask for recommendations for other banks. Local banking markets are small and bankers are well aware of what type of loans their competitors are making.
5. Does the bank offer the mix of services and products you want? What do you need -- traditional loans, lines of credit, SBA loans, credit cards, direct deposit, 401K services, or auto/equipment leasing? This is the next follow question after confirming that the bank currently does business in your industry.
6. Does your desired loan amount fit within the bank's lending limits? What is the average loan the bank makes to small businesses? Can the bank grow with you as your company's financing and banking needs increase? Many banks have different divisions handling loans based upon the size of the loan and the size of the company. Smaller banks may have ceilings on how much they can loan to one business, while larger banks may have a minimum size loan.
7. Can you secure a meeting with the right person? Can you get introduced or be referred to the bank officers who make the lending decisions? More importantly, it is always a plus if their superior takes an interest in you, or someone they respect refers you. While this may not guarantee that you will get a loan, you will receive preferred treatment.
8. Is the banker willing to meet with you at your company? Will he take the time to come to you and see your business operation? If your business "shows" well, it is always better to meet the banker at your place.
9. Does the banker have local lending authority? Surprisingly, we have found that some of the largest national and international banks leave lending decisions to each branch.
10. How long has the loan officer been with the bank? What is her expertise and level of experience in working with small and mid-sized businesses? We have also been surprised to discover that many loan officers who appear so authoritative have very little lending power.
Have a small business finance question for The Money Dept.? Hit the comments or email Rich and Mary using the contact form under their photo.
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