How to Understand Small Business Lending | Florida Capital Bank

While much of the news is focused on how well or how poorly big businesses are doing, it is easy for small business owners and people wanting to start a business to feel overlooked and unappreciated. Many people want to support your existing business or help get your new venture off the ground. This includes lenders who want to help folks just like you achieve your entrepreneurial dreams and provide satisfying employment for others.

The process of preparing a small business lending application and improving their likelihood of success seems overwhelming to many people because it is different than their typical day-to-day duties. That does not mean it is complicated or beyond your capabilities. Just begin preparing early and take your time to understand and work through each step.

Start-up loans vs loans for growth

Banks and other lending institutions are more inclined to approve a loan application for the growth and expansion of an existing business with a successful track record than a loan application for starting a business. For this reason, many people start their business with loans from family and friends or on their personal credit cards. This method can create an undercurrent [KB1] of stress that undermines the success of what could be a sound business.

With a feasible business plan, some personal funds to invest, and collateral to back a loan, local community banks, Credit Unions, and small lending institutions may appreciate the opportunity to help a local business. Your best opportunity for securing a start-up loan is with assistance from the Small Business Association. They provide information on obtaining a small business loan and training resources to help ensure your success.

Typical small business loan amount

Small Business Association (SBA) loans can be as low as $5,000. This is considered a microloan. The largest guaranteed amount is $5 million. According to the SBA, the average loan is about $370,000. In the banking industry, most loans are in the range of $130,000 up to $140,000 with some as high as $250,000. 

What lenders expect from you

The lending standards for different banks vary and can be influenced by how many small business loan applications they have already approved. There is some criteria that is standard for lending institution to consider lending:

  • Loan must be for a legitimate, sound business. The loan cannot be used for speculating, gambling or a passive investment. The amount of the loan needs to be appropriate for the size and nature of the business.

  • You and any partners must have good credit history and character. One of the most common mistakes business owners make is using their personal credit cards for business. This can hurt your small business loan application, even if you have always paid the balance in full and on time. The total amount of available credit being used is a key factor in determining the financial health of a person.

  • Review your credit report well in advance of your loan application, pay off all of your credit cards and limit how much you use them.

  • The profitability of the business must be good. Banks do not want to be the safety net of a poorly run business. Far too often, people request loans on the basis of needing the money for their business to survive. Lenders are operating a business also and they have shareholders and employees to consider. They want to invest in businesses with a bright future and help the economy. The loan process can take months and cash-strapped businesses will often fall further into debt during that time. This negates any benefit of the hoped for cash infusion.

Information you need

  • A thorough and well prepared business plan: It should include personal details like education, work experience and bios for principals of the company.

  • A detailed credit history for individuals and the company

  • Financial statements for individuals and the business: For start-ups and existing businesses, projected financial statements are needed.

  • Cash flow projection for at least the next year are required: Further projections are beneficial.

Prepare in advance

  • Establish an accounting system that you understand and use to track finances. It can take some time to acclimate to a new process, so ask other business owners what works best for them.

  • Begin reviewing your personal credit report months in advance and be mindful to protect your credit score.

  • Consider and compare different lending institutions before committing to one.  Some are better prepared to address the concerns and needs of small businesses.

  • Talk to a loan officer that specializes in SBA loans about what documentation you need for your loan application. Bring everything they ask for and be as thorough as possible. Your loan application process and loan will go much smoother with a fully completed application that includes all essential documents.

At Florida Capital Bank we are proud to be a part of helping small businesses contribute to our community and economy. We utilize a team approach to help you determine and secure the best financial products for your unique business needs. Contact one of our SBA loan specialist to discuss your current and future financial needs.