Loan Package
What should you include in a loan application package? Each bank will have its own application form. You should plan on providing:

current personal financial statement (i.e. not more than 3 months old)	2 or 3 years of business tax returns
2 years of personal tax returns	copy of your credit report (not more than 30 days old)
projection of the next 2 or 3 years cash flow (illustrating how you will pay the bank back)	brief explanation of how much loan money you need, and what you plan to use if for
one page "bullet items" on the key aspects of your business that makes it look so attractive

We encourage business owners to include this last item - the "bullet items" list - even though your banker will never ask for it. Picture this list as a brief sales pitch for your business. You are selling the banker on why he or she should fund your company. Note that we did not include a business plan on the list. Your banker may ask if you have one. If you do, include it if you have updated it recently. Otherwise, you will look foolish by including an out-of-date plan. Besides, most commercial bankers understand that very few business owners have the time to develop and maintain the hefty business plans recommended by university professors.

Loan Shopping
Plan on shopping the loan with three bankers. The reasons are to prevent delays (in case of a turndown) and to make the bankers compete on their pricing. Initially you just want to give the banker a great "road show" sales pitch. You are trying to change the banker's mindset from warily eyeing you as a potential loss for the bank (and therefore his or her banking career) to a sales mode of trying to earn bank fees and interest off you.

Once the banker expresses interest in providing a loan to you, then you can mention that you have talked with several other bankers who offer better interest rates and/or points or closing costs (or compensating balances, or whatever other restrictions the banker tries to impose). At that point the banker has invested time and some of the bank's money in investigating your loan request, and has decided that you are one of the few to whom they will offer a loan. The banker is more willing to negotiate loan pricing at that stage.

What type of loan should you ask for? Most business owners like the line of credit, since it provides no accountability, no collateral, and maximum flexibility. These are the same reasons that most bankers strongly dislike offering lines of credit to small business owners. You can increase your chances of obtaining a loan by matching the request for funds with the usage of those funds. For example, if you want to purchase equipment that should last several years, a term loan with monthly payments over the expected life of the equipment makes the most sense to a banker. When might you request a line of credit? Lines are useful for temporary cash flow needs, such as a retail store buying inventory in October to sell during the Christmas season (when the line will be expected to be paid off). Plan on the line "coming to rest" (i.e. being fully paid off) every 90 days.