For many of today’s business owners, no movie quote resonates most than Cuba Gooding Jr.’s famous line from Jerry McGuire: “Show me the money!”  Times are tough, and lending markets are tight.  So how can you increase your chances of getting a business loan in today’s economy, whether it’s a line of credit, a commercial line, or an SBA guaranteed loan?  We posed that to some top lending experts in Southern California for their insights, and we’ve compiled a list of questions that every small business owner should consider as they consider their financing needs.

“How much money do you need?” is the number one question that Rachel Zippwald from California Bank & Trust in Huntington Beach asks. And she means it exactly. Don’t waste your time with speculation or unclear requests such as , "I think I need" or "I need between X and Y." She shares that no banker wants an indefinite or unclear request, so be sure you have your plan in place before you put your request in front of your lender.

“What is the purpose of the loan?” is the number two query on the Top 7 list. What is the money for? A general statement such as "I need $200,000 for working capital and equipment" is not enough, so be specific. A request such as, "I need $75,000 for working capital to support 3 months of expenses while the business is growing, and then another $125,000 for equipment that consists of $50,000 for a computer system (6 computers plus software and server), and $75,000 for an XYZ New and Improved Machine," is well thought out and makes most lenders comfortable of your agenda. If you have copies of bids or proposals, include them with your request. They will strengthen the package and support the facts behind it.

“Who’s the Boss?” Who runs the company? What are their qualifications along with all owners, directors, and managers? Have they weathered the ups and the downs of this industry? Include a resume for each of the major players of the company, and if you don't have someone yet, include a thorough job description for the type of person you are looking for. Who will be in charge of sales? Accounting? Knowing who will run the company tells the lender that most details and positions have been identified in advance.

“How do you spell security? COLLATERAL.” If you want the bank's resources, you must be willing to pledge your own. SBA (and most) lenders are not in the business of unsecured lending, so they may only be able to approve your loan if there is a guarantor willing to offer collateral for you. 

“Clearly identify your personal resources and that of your team to prove that there is money to inject into the business and there are sufficient assets to act as a safety net,” concurs Matt Davis from Southland Bank in Santa Ana. “This would include personal assets which could be taken as collateral to mitigate the lender's risk.”

What is the financial strength of the owner or person requesting the money? That means supplying complete copies of ALL the pages to personal and business tax returns with all schedules, financial statements, bank statements, etc… And be sure to voluntarily share your personal credit report, too. Nothing grieves the loan officers more than having incomplete information that the potential borrower knows should be included.

Be prepared to share your credit history and your credit score.  Lenders will run a credit report and find it all out anyway, so it's better for you to tell them in advance rather than look like you were concealing important facts. If you don't know your credit score, or have a copy, get one. They are easy and inexpensive to obtain, and if you've had serious problems like identity theft, bankruptcy, divorce, etc., disclose them up front. Period.

“How did you calculate your projections?” This is far and away the number one issue with most lenders, and a pet peeve for many. Stacey Sanchez, Senior Community Loan Officer with the CDC Small Business Finance Center in Anaheim states “The deal killer for me is unrealistic projections, or what appear unrealistic to me or are not clarified in the assumptions. If this is a start up, maybe a restaurant, I want to know how many hours it will be open each day, what is the capacity, average ticket size, etc… When I see payroll projections I want to know that it is based on X hours at Y rate of pay, and not some artificial number.”

A big red flag for lenders is unrealistic assumptions. When they see a huge jump in revenues from one year to the next – more common with existing companies – warning bells ring.  For example, if your business is treading along for several years at $500,000 in gross revenues, and you claim that a new loan will allow you to jump to $1M in revenue, all from new marketing efforts – expect to answer a few tough questions.  Lenders will want to know if your assumptions are likely or even possible.  Mitigate doubt by sharing both the “how” and the “what” for your proposal.

“Tell me why you will be successful and be able to achieve your projections,” states Zippwald. “If you have customers that want to do business with you, give me a copy of your correspondence that proves it. Show me and persuade me as to why I should believe your sales figures and your expense figures. If your Cost of Goods Sold (COGS) has historically been 65% and now you can lower it to 55%, show me how you came up with that calculation. If buying that new piece of machinery is the reason because now you only need 1 operator instead of 4, then show me the math of how you will save.”

“Is this a quick fix or a long term solution?” When applicable the business plan should include the why a company needs the loan.  Lenders will want to know: How did this happen? Was it within your control? Were you a victim of circumstances? If the loan is designed to fix the problem, be sure to address exactly how it will do that.

“I don’t take dictation and so if it was important enough to point out to me in the initial intake then it is probably worth including in the plan,” shares Sanchez.

Are there loans available?  The answer is a resounding yes, but lenders are taking extra care to be cautious with their investment.  A good, solid, well thought out business plan can increase your odds and create a fundable loan for you.