Negotiate a Business Loan on Your Terms

Andrew J. Goldberg
February 20, 2008 — 1,681 views  
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For most small businesses, banks remain the primary source of capital.  Because banks have something businesses want, namely money, businesses believe they have no leverage when negotiating loan agreements.  However, this it not necessarily the case.

The following are general principles business owners should keep in mind when attempting to obtain a loan from a bank:

1. Research the loan process to gain a complete understanding of it.  If you are not comfortable negotiating the loan, seek assistance from your lawyer or accountant.

2. View the loan agreement with a long-term perspective.  The terms and provisions of the agreement could apply over a time period when economic conditions can change.

3. Make sure any restrictions or covenants do not impair the flexibility of the business, the ability to take advantage of new business opportunities, and the ability to compete.

4. You must educate the banker on your business and your industry’s practices so his loan terms do not put you at a competitive disadvantage.

5. Arrange for bank financing before needing it.

6. Remember, banks need you as much as you need them.
With this background, you are now ready to make your presentation to the bank.  The presentation must give the lender the impression the borrower runs the business with a plan and a strategy.

Following are elements that must be included in the presentation:

1. Present basic financial and business information including: interim financial statements less than 90 days-old, financial statements and tax returns for the prior 3 years.  Other information may include income and expense projections, a schedule of existing business debt, accounts receivable aging, and a listing of fixed assets.

2. Present a financial forecast showing the debt repayment plan and a balance sheet reflecting the value of the collateral to be pledged as security for the borrowing.

3. The assumptions underlying the presented financial statements must be clearly stated.  Realistic assumptions will ultimately form the basis for the actual loan documents.

4. Finance short-term needs with short-term money and long-term needs with long-term money.  Financing long-term projects over too short a period of time could result in insufficient cash flow to keep the business in operation.

5. Show the bank that as your business grows you may be able to provide additional collateral, or at least different types of collateral, as security for the bank’s loan.

6. Have your financial advisors review your goals and plans.After you have made your presentation to the banker, the negotiation process will commence.
For tips on negotiating with the bank, go to to read an extended version of this article. For further information regarding these matters, please contact Mr. Goldberg at 248.528.1111 x664 or [email protected].

Andrew J. Goldberg