How to Get Turned Down for a Bank Loan

by Pamela Hedblad at Abbott, Stringham & Lynch

If you are a female business owner planning to secure a bank loan in 2011, steer clear of these common mistakes or risk being turned down.  In my role as a Principal at Abbott, Stringham & Lynch, a Silicon Valley accounting firm, I serve a number of women-owned businesses.  While banks offer loans tailored to women owners, I see applicants turned down due to mistakes that could have been avoided.  The following is my list of top mistakes made by women-owned businesses when applying for a bank loan.

Mistake #1: Wait until you need a loan to contact the bank.  The worst time to introduce yourself to a banker is when you need a loan.  Establish a relationship with multiple bankers throughout your career and certainly when you are even thinking of starting a business.  Owners who show up at the bank hoping to get a loan based strictly on a business plan are at a disadvantage.  Bankers need to get a sense of your personal integrity.  Build a positive history with multiple bankers—these are the friends who will go to bat for you with the credit committee when you apply for a loan.  If you do not know a banker, ask other professionals, such as accountants, attorneys, and other business leaders, to make an introduction.

Mistake #2: Show up with sloppy books. Secure a reliable and knowledgeable bookkeeper.  You cannot underestimate the importance of presenting clean, professional financial statements right from the start.  First impressions count.  Once you have your numbers together, ask an outside advisor to have a look at your financial statements.  An experienced outside advisor can objectively review your financials and ask the questions that will be on the minds of the bankers.  Candidates for financial statement review include part-time CFOs and certified public accountants.  To find such an advisor, check with other business owners as well as the multiple organizations that support women-owned businesses.

Mistake #3: Put off creating a strategic plan. Many business owners jump in with both feet and get to work without creating a business plan.  In the venture world, you have to have your act together to secure funding.  Business owners without the immediate need for financing are not forced to create a business plan, so many simply do without one.  Having no plan is a mistake.  During the loan application process, bankers are looking for a solid strategic plan, along with financial projections.  They want to know how the company will be managed.  As a business owner, you may intuitively understand where the business is headed, but it is important to communicate the specifics.  You want a five-year plan with a financial picture that projects your revenue level, required financing, number of employees, and profitability, among other factors.

Mistake #4: Ignore competitive advantages.  Many major corporations are looking for women-owned businesses to satisfy their contract needs.  To qualify as a women-owned business, look into certifications.  Though certifications may not be right for every type of business, they can lead to securing corporate, retail and government contracts.  You can get a leg up over competitors, especially if your customers are large, publicly held corporations.  Certification is a marketing tool for raising your firm’s visibility and tapping into decision makers with an interest in diversity.  Share news of your certification and resulting successes with the bankers you know.  To learn about programs, opportunities and certifications, contact the Women’s Business Enterprise National Council (WBENC) www.wbenc.org; the National Women Business Owners Corporation (NWBOC) www.nwboc.org; and the National Association of Women Business Owners (NAWBO) www.nawbo.org.

Mistake #5: Wait to build your team of advisors.  A bank is more likely to look favorably on your business when you are supported by a great team of advisors.  Get your attorney and accountant in place upon establishing the business, if not prior.  Befriend and get the advice of part-time chief financial officers.  Surround yourself with professional service providers who are connected with the business community.  Your team of advisors can help you identify the right bankers for your business and can often make an introduction.  Seasoned accountants, attorneys and CFOs usually enjoy long-term relationships with local bankers.  In the banker’s eyes, a strong professional service team implies a vote of confidence in you and your business.

Networking with other female founders can be of tremendous help and inspiration.  There are many associations that support the female business owner, including the National Association of Women Business Owners www.nawbo.org; Astia www.astia.org; and Watermark www.wearewatermark.org.  Female founders and supportive organizations not only provide helpful information, they can lead to opportunities you would not have otherwise encountered.  What’s more, local bankers are often members or sponsors of associations focused on women business owners.