Bank execs: Loan seekers must pitch idea well

By Buck Wargo

Friday, May 7, 2010 | 3 a.m.

Businesses looking to secure loans have an advantage if they have a compelling story and a solid personal credit history, according to banking and small-business executives.

“Write a bio and put yourself in the best light,” said Mike Sexton, small-business manager at Nevada State Bank. “The story is critical. It’s about understanding who you are, why you are doing this and the passion you have for your business. That breathes life into your financials.”

Sexton was one of the speakers who spoke April 29 to about 100 people at a seminar on advice for small businesses at the South Point.

Despite the perception that banks aren’t making many loans to small businesses, Erich Bollinger, the executive vice president and chief corporate banking officer with Nevada State Bank, said demand for small-business loans increased 8 percent in the first quarter of 2010 and the approval rate was up slightly as well. In 2009, the bank did $64 million in new micro-business loans, $34 million in new small-business loans and $120 million in corporate loans.

Sexton said it’s been a challenging time for businesses in Las Vegas, but he said he’s optimistic about the economy improving. But businesses applying for loans need to understand the lending process if they are going to be successful in getting the loans they seek, he said.

Besides the story of the business, Sexton said personal credit is vital even though applicants question why it has anything to do with the company. Personal credit scores, collections, slow payments and loan modifications on homes are factors in the lending process, he said.

“People think their business is separate from their personal, but it is not,” Sexton said. “They are intertwined. We are not lending to a small business, but to people.”

Dennis Wengert, director of the Nevada district office of the U.S. Small Business Administration, said the economy has been challenging over the past two years — but that has created opportunities for new businesses to be successful.

The SBA guarantees bank loans up to 90 percent, which has helped persuade lenders to move forward when they otherwise might not have done so, said Wengert, who said SBA loans are down sharply from two years ago.

Not only have most lenders tightened their underwriting guidelines in response to their own challenges in getting access to capital, but many are only looking for outstanding business investment opportunities, Wengert said. The challenge for potential borrowers is to position themselves at the top of the applicant pile, he said.

Companies must perfect their business plan and focus on local data and not national data, he said. They must also put themselves in the banker’s shoes of what questions they would expect the plan to answer if money is loaned, Wengert said.

“If the bank doesn’t see the value proposition you have for them in terms of your business, it is a nonstarter,” Wengert said.

It’s vital that business owners understand about managing cash flow and inventory and where the marketplace is headed.

“Money is not always the answer,” Wengert said. “It can compound the problem.”

Business owners need two to three years of personal tax returns and business returns for the same period if the company has launched, Wengert said. Any negative credit history within the past year can doom a loan unless it is repaired, he said.

“They are loaning money to you who is running the business,” Wengert said. “If you can’t manage your personal finances, why would a bank think you will manage the business any better?”

Lenders now require owners to put up 20 percent of the loan in cash and even more if it’s a start up, Wengert said. Lenders will want to place a lien on personal assets, including homes.

Before going to a bank asking for a loan, Wengert said it’s vital to be prepared by checking on your credit report and preparing a speech ahead of time. It should focus on why this, why this bank, and why now, he said.

“Be passionate about your business plan,” Wengert said. “You need to show the story, not how the money would allow you not just to survive but to thrive and grow.”

That’s why it’s important to build a relationship with banks over time so they understand the business and how it’s proceeding, including sharing quarterly financial statements. When the time comes to seek out a loan, they are in position to say yes, Wengert said.

Businesses shouldn’t be afraid to meet with multiple lenders because some banks are better suited to certain types of industries, Wengert said.