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Obtaining a Commercial Loan

Community banks, like Simsbury Bank, have money set aside to lend to small and medium sized businesses in Connecticut. Whether the loan will be for inventory, receivables, equipment, or a new building, local banks are committed to helping local businesses achieve their goals because of the importance they play in the economic vitality in the community. The following suggestions will help make the loan application process an easier first step to achieving your business goals.

  1. The Basics – Most banks have a commercial loan application form that outlines the information required of both the business and its owners. Be prepared to provide names, addresses, phone numbers, social security numbers, and/or tax identification numbers. You will also need to provide the type of business you will be running, history of the company, the amount and type of loan requested (line of credit, mortgage, term loan, site development, etc.), and any proposed collateral.

  2. Financial Condition – A key part of a bank’s lending decision will be based on the financial condition of the company and the guarantors.  Most banks request the following:
    • 3 years of business financial statements and tax returns
    • Interim financial statements with a prior year comparison
    • A personal financial statement for each individual guaranteeing the loan and three years of personal tax returns.

    Depending on the type of loan sought and the nature of the proposed collateral, agings of accounts receivable and payables and/or appraisals of equipment and real estate may also be required. It is advisable for guarantors to check on their personal credit report in advance to ensure that there are no errors on the report. The Federal law now allows everyone to receive a free credit report annually from each of the three major credit bureaus.

  3. Legal Requirements – To comply with laws and regulations, applicants will need to provide appropriate identification, including a driver’s license or other official form of identification.  Additionally, federal regulations now require a variety of disclosures and certifications to confirm that a business’ activities are legal and comply with post 9/11 Homeland Security related requirements.

  4. Business Plan – A business plan is a tremendous tool for a business owner to have and present to a bank in conjunction with a loan request. This is a critical document for a new business and it also enhances the request of established businesses. There are elements that are essential and common to a business plan as follows:
    • Executive Summary – This section should contain names and locations, a brief description of what the company does, revenue size and what the purpose of the plan is.
    • Company Description – Include the history of the company, products /services provided, its customers and vendors, markets served.
    • Market Information – Define markets served, estimated size and share, competition, competitive advantages and shortcomings.
    • Management and ownership – Resumes, bios, or backgrounds on owners and key employees; nature of legal structure and ownership percentages; key roles and backups.
    • Marketing and Sales – How the products and services are priced and brought to the markets served, current pricing and collections.
    • Financial – Historical summary of revenue, expense and profitability trends; balance sheet liquidity and capitalization, debt structure. Projections if possible, are valuable.
    • Financing Request – The amount and type of credit requested, what the funds will be used for and how the loan will be repaid.

    The preparation may seem daunting. However, the Small Business Administration has a variety of resources to assist business owners in preparing their plan. Visit the SBA’s website at www.sba.gov.

  5. Meet The Bank and Show off Your Business – Once an application package has been completed, schedule a meeting with the bank’s commercial relationship manager or commercial loan officer. Invite the banker to visit you and give him or her a tour. This gives you the opportunity to showcase your business and your employees. Most banks encourage their relationship managers to “look beyond the numbers” when evaluating a loan request, and this is the perfect chance for them to do that. Also, consider introducing the banker to your CPA and attorney– two important resources for you and potential sources of verification. Word of mouth endorsements are powerful.

Good luck with your commercial loan application. Remember, your local community bank, such as Simsbury Bank, is only as successful as the businesses and consumers in their local market area.  While large regional and national banks serve many markets across the country, the success of a local community bank is tied to the local market it serves. Your community bank is 100% motivated to help you achieve your business goals! 

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