A few years ago I wrote a business plan for a client who received financing from a local credit union. This deal was done during a time when fuel costs had increased substantially.

The client was in the trucking industry. Typically, banks don't consider loans to trucking companies. The reason is rising fuel costs and negative experiences (truckers are already missing payments due to high fuel costs). The bank head office sent a directive stating it would not accept loan applications from trucking companies.

Important Point: Banks don't take risks!

That is not a bad thing and may seem like a strange statement because you, as a business owner, may not see the risk, or you are willing to live with the risk. Your bank manager is going to protect the interests of the bank and his job before giving you any slack.

Critical factors to understand:

1) Most lending decisions are largely based on mathematics. Are your financial ratios: debt to equity, ROI and quick ratio in line?

If your ratios are in line, and you have a good credit history, you have a reasonable chance of getting a loan.

If, however, you aren't able to gain the bank's confidence and show you know your business, how to run it and solve potential problems, you could be disappointed.

2) The importance of a good business plan. Many lending decisions -- especially larger loan amounts--are made by committee. The only thing the committee has to go on is your business plan and the loan officer you are dealing with.

Your business plan must be well thought out, conservative and realistic. It should create confidence and reduce the risk.

3) A good relationship with your banker: In this case my client's accountant went to the bank with him. The relationship was strong, and the bank was extremely motivated with a high degree of buy-in.

Start With Your Bank

Obviously, your current bank is the best place to start.

You might also consider contacting your local economic and business development agency. Most larger cities and municipalities have established these agencies to assist business owners.

Another good place to start is a referral from another business owner. If he has had a good experience and relationship with a banker -- it can only help.
Remember, you have to shop for a bank and loan just like any other service. Some banks are more hungry and open than others. Find someone you like who will work with you.

No matter what -- most banks will want to see a business plan.