Whether it's for operating costs, expansion or to pay off debt, being able to access additional capital when it's needed most can be critical to the survival of your business.
A study from researchers at the University of Texas at Austin; the University of California, Los Angeles; the Massachusetts Institute of Technology; and the Universidad de Piura discovered that a loan of just $11,000 can increase a business's three-to-five year survival rate by more than 50 percent.
As the small business lending executive at Bank of America, Chris Ward knows better than many just how big of an impact access to capital can have on a small business. Ward's team at Bank of America is responsible for underwriting and maintaining the bank's small business credit portfolio – including credit card, lines of credit, term equipment loans, mortgages, SBA lending and Practice Solutions (physicians, dentists and veterinarians) loans. Prior to joining Bank of America in 2017, Ward was president of business banking for Citizens Bank.
We recently had a chance to speak with Ward about small business lending, the benefits of going directly to a bank for a loan and how to position your business in the best possible light to get approved for additional capital.
Q. How do you know if your business is better suited for a bank loan, an SBA loan or a loan from an alternative lender?
A. According to Bank of America's spring 2018 Small Business Owner Report, about 1 in 10 entrepreneurs nationwide are planning to apply for a loan this year. If you are one of the small business owners looking for capital, there are many factors to consider when deciding for which type of loan your business is better suited. Before you begin, it's important to ask yourself a few key questions such as why do you need the money? How much do you need? How long will it take you to pay it back? And how long have you been in business? The answers to these questions can help you determine which course of action is best for your business, but they can be difficult to answer.
I encourage all small business owners to meet with a local small business banker. They are experts in small business lending who can provide advice about what is best for you and your business both in the short and long-term. Even if you are just starting out and don't think you will qualify for a loan, small business bankers can give you guidance on where to turn for capital. They can also help you develop your business plan to help you get where you need to be to receive a traditional bank loan.
Q. What are the benefits of getting a loan directly from a bank?
A. Banks offer business owners convenience, lower rates and a more robust set of credit options, including small business credit cards, unsecured and secured lines of credit, term loans (including commercial real estate loans), SBA loans, equipment loans and more.
Additionally, small business bankers can give clients unmatched expertise and guidance, which is key because every business has a different set of needs. At Bank of America, we have more than 2,000 small business specialists supporting our clients' unique banking needs.
Q. When searching for a lender, what factors should a small business consider?
A. Business owners should judge a prospective partner on its expertise, convenience, technology, the number and diversity of loan options available, as well as the diversity of other products.
Additionally, business owners should consider the type of financing they're seeking to secure. For example, if you're looking to secure a SBA loan, it's best to choose a SBA preferred or certified lender. If you want to explore the use of small business credit cards, choosing a lender that offers reward programs is a great way to help you grow your business and get more back from your banking.
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Q. What factors could affect your loan period?
A. Loan periods are affected by a variety of factors. Primarily, you should consider how and what the loan is being used for. For example, if you need an equipment loan for a machine that will last five to 10 years, you should look for a shorter term than a commercial real estate loan for a property or building that will last 25 years.
On the other end of the spectrum, business owners should expect a shorter loan term for a working capital loan or line of credit used for their everyday cash flow needs.
Q. When preparing to take out a loan, what should you be doing to ensure your business presents itself in the best possible light?
A. While it's true that all businesses are different with varying financial needs, creditors generally follow the "five Cs" when making small business lending decisions: capacity, collateral, capital, conditions and character.
- Capacity evaluates whether your business can support debt and expenses. Typically, you need enough cushion to absorb unexpected expenses or a downturn in the economy.
- Collateral includes accounts receivable, inventory, cash, equipment and commercial real estate. Lenders may also take into consideration existing debt that your business may still owe on collateral.
- Capital looks at whether your business assets outweigh liabilities; and how much capital you and other outside sources have invested.
- Conditions such as the economy, industry trends and pending legislation may be taken into consideration, although these are often out of your control as an individual small business owner.
- And finally, character – your own character and the character of those tied closely to the success of your business – is critically important. Factors such as personal integrity, industry experience and good standing can make a difference.
To help present your business in the best possible light, you should make sure you're maintaining a good credit score, borrowing only what you know you can pay back, presenting a repayment plan that's complete with projections and a safety net, showing a history of paying bills on time and providing collateral.
Q. What are the essential things to try before taking out a loan if you're struggling financially?
A. If you're struggling financially, it's best to consider the wide range of options available. A loan isn't the right solution for every business. First and foremost, you should explore alternative ways of managing your businesses' cash flow. Sometimes managing cash flow more effectively through merchant services enhancements, remote deposit capabilities, advice from your banker, etc., will be more impactful than simply applying for a loan.
Q. What separates Bank of America from other lenders?
A. Bank of America believes that you should be able to do more and get more when it comes to banking. Consistent with national trends, we have a number of services and programs in place for our customers, which allows them to maximize their benefits of working with us. According to the Bank of America Small Business Owner Report, mobile use is nearly universal among small business owners, with 41 percent reporting that they use mobile devices for digital banking. Our mobile banking app has been J.D. Power certified, and awarded with "an Outstanding Mobile Experience" for ensuring ease of navigation, availability of key information and clarity of information.
Additionally, our new Bank of America Business Advantage Relationship Rewards program is the most comprehensive multi-product rewards program available in the small business banking space. It rewards eligible clients with an attractive suite of benefits including a rewards bonus of up to 75 percent on the base earn for eligible business credit cards, no fees on select everyday banking service, interest rate discounts of up to 0.75 percent on select small business loans, cash rewards on merchant services processing and more.