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Navigating the Red Tape of Business Loans

Before applying for a business loan, know what you need and why. Cadence Bank reviews what banks look for when reviewing small business loan applications.

Banks sometimes get a bad rap when it comes to making business loans. But it’s important to remember that banks are in the business of lending money. This includes lending money to small and mid-sized businesses. Your banker wants to lend you the money you need. But like any good business, your bank needs to take safeguards to reduce risk — specifically, the risk that the money is not repaid in a timely manner.
This is why banks with commercial banking services have a detailed loan application process in place that business must follow if they want to borrow money. While it might seem like “red tape,” this process is designed to protect the bank and make it easier for the bank to help your business.


Tailoring the Right Type of Loan

According to Cadence Bank Senior Relationship Manager Delpha Bartley-Jones, small business owners often don’t have a clear idea of exactly why they need to borrow money. “The loan application process will help the banker and the owner pinpoint the specific reason for the financing request,” she says. “Then the banker can tailor the right type of loan to meet the specific financing need.”
Banks want to loan businesses enough money to meet the specific need, but not too much, Bartley-Jones adds. “The bank doesn’t want to burden or over-extend your business with more debt than you can comfortably handle,” she says. 
When assessing your loan application, the most important thing your banker will look at is your cash flow. “This is the main indicator of whether or not you will be able to repay the loan,” Bartley-Jones says. The bank also will take a close look at your business’ credit history to see if you have repaid debt on time in the past.
In addition, banks usually ask for a complete set of financial statements as part of the loan application process. These include a balance sheet, income statement and cash flow statement. Financial statements should be current and prepared in accordance with generally accepted accounting principles (or GAAP). “A CPA can help you prepare your financial statements so they are ready to present to your banker,” says Bartley-Jones.
Your bank also may want to see your business and personal tax returns, accounts receivable aging reports, current accounting and bookkeeping records, a record of state and federal tax payments, and sales and cash flow projections. Be sure to include the assumptions upon which your projections are based, since these will help your banker gauge how realistic the projections are.



Avoid Surprises

If there’s one thing that banks don’t like, it’s surprises. So if there are any issues with your finances, whether business or personal, it’s better to bring these up and discuss them with your banker early on. “This way, issues can be planned for in advance, instead of causing potential problems down the road,” says Bartley-Jones. “In short, keep the lines of communication with your bank open.”
Finally, don’t wait until you need a loan to establish a relationship with a bank. “It’s better to build a strong banking relationship before you need to borrow money — because banks tend to prefer lending money to businesses they already know,” says Bartley-Jones. 
This is one reason why it’s usually a good idea to approach the bank where you have your business and personal checking accounts, merchant account, and/or cash management services first about commercial loans. Additionally, your bank might be able to offer relationship pricing on your business loan.
Please contact a Cadence Bank representative if you have more questions about applying for a small business loan.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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