What are the first steps in contacting a BankNewport Lender? What are the basic questions I will be asked?
- Call BankNewport’s Business Banking Group (or any BankNewport branch) to discuss your lending needs. Easy enough!
- Prepare all the requested documents and include a business plan.
- Ask what the Bank’s requirements are. We’ll walk you through the process, step by step.
Here are some basic questions you may be asked by your Lender or Banker:
- How much money are you looking for?
- What will the loan be used for?
- How much are you investing into your business?
- What do you have to offer as collateral?
How can I prepare for a meeting with a BankNewport Lender?
Basic but important guidelines to follow:
- Be on time. We will be, too!
- Ensure completion of a business plan, personal financial statement, and any other materials you need. (These documents may be requested by the Lender for review prior to the meeting.)
- If we’re both prepared, the meeting should take no longer than 30 minutes!
- Give an overview of the request and related information as to why you are starting the business.
- If applicable, it’s a good idea to invite your Lender to visit your place of business. Show them any special equipment related to the business, or explain any special services that you offer.
- If you are expanding your business or your plan is a remodeling project, please explain your plans. Again, a visit is always helpful.
- It is perfectly acceptable for you to ask when you can expect an answer. If you are having a conversation with the Lender over the telephone, all requests, decisions or negotiations made on the telephone should be put into writing.
- Communication is key, so it’s always best to follow up the meeting with a thank you letter and/or a phone call.
What should I expect from my Lender?
When BankNewport approves your loan request, it means we believe in your business, as well as your ability to make a profit and repay loans. When you work with BankNewport, your Lender is now your partner and functions as part of your company “team.” Your Lender can assist you in determining which products and services will suit your business’ needs. Your Lender is a trusted advisor; he or she can provide insights into your industry’s growth opportunities and how you can take advantage of them. As your business partner and fellow member of the Rhode Island business community, we want you to be successful!
What are the responsibilities of the business owner to a Lender?
It’s important to remember that your Lender is using depositors’ money to fund your loan. Just like you, BankNewport is in business to make money, so it’s vital that your loan is repaid on time.
As you begin to establish a financial relationship with your BankNewport Lender, you may be asked to submit the following documentation:
- Three years of tax returns prepared by a professional
- Financial statements (the following could be requested)
- Balance sheet
- Operating Statement
- Projected Cash Flow Statement if you are starting a new company
- Personal Financial Statement
- A list and value of collateral secured to the loan
- Accounts receivable aging, which is a list of all invoices by how old they are
- Accounts payable aging (same as above)
What is a business plan? What should it include?
A business plan is a document that offers a summary of your company or organization, including your business goals and earning objectives. It shows how a loan will be used and repaid. Financial statements (projections for a start-up business) are also included. Business plans are also created when an existing firm plans a significant change in its operations.
A business plan is a vital step in the loan request process. It also tells your sales personnel, suppliers, and others about your operations and goals. A good business plan helps you allocate resources properly, deal with unexpected challenges, and make sound business decisions.
Your Business Plan should include the following:
- Legal name of the borrower or the business
- Legal name of all owners
- The names of your “professional team” (lawyer, consultant, CPA, insurance agency)
- An Executive Summary, which is a description of who the owners are
- Your management team & employees
- Your marketing plan
- A competitive analysis
- Your business location
- Your operations
- Your Loan Request
- Financial Statements (Balance Sheet, Income Statement, Personal Financial, and Cash Flow)
- Appendix which explains the details (for example, resumes, inventory evaluation, marketing plans)
A little common sense goes a long way, so remember, it doesn’t take a financial expert to write a good business plan! The owner(s) should write it and do so as though they were the ones being asked for the loan. It is fine to turn to a professional consultant or accountant for guidance, but the plan should be based on your own input. It’s imperative to know exactly what the plan includes and how all the numbers are derived.
A cover letter should state how much money is being requested, how much equity is in the business, how the loan will be repaid, and what is being offered for collateral.
What kind of loan do I need?
The kind of loan you seek depends on the need or purpose for the loan.
A Short-Term Loan can be one year or less. An example of a short term loan is a Line of Credit (LOC). An LOC is like a credit card with a predetermined loan amount. With an LOC, you use the money when you need it and the repay it back. LOCs are a good answer to working capital needs.
A Term Loan has loan payments that are made on monthly basis. You may utilize a term loan for inventory, expenses, machinery, or furniture. For a longer term loan your needs may be more substantial, such as to buy commercial real estate, make a major improvement to your business property or purchase major equipment.
What are different types of loans used for?
- Equipment, machinery, furniture and fixtures
- Working capital
Does my personal credit history have an effect on my Lender’s decision to approve my loan?
Yes, your personal history plays a big role since you are the business owner. There is a direct correlation between your personal credit and the credit of the business. Most institutions prefer applicants who have good credit, thus helping the applicant’s chance of approval.
There are five factors, referred to as the “Five C’s,” that your BankNewport Lender will consider during the loan review process:
- Collateral – What is the value of the assets that will secure the loan? What type of collateral do I have to offer? Collateral assets can be business or personal. Business assets may include real estate, equipment, receivables, or inventory. Personal assets may be real estate, stocks, or savings.
- Capital – How much money are you and/or your investors contributing to the business?
- Capacity – Is the business able to fund its debts and expenses? The business must be profitable.
- Conditions – Are there any industry trends or economic conditions that could affect the success of your business?
- Character – The character and reputation of you and/or your investors will be evaluated as part of the decision process.
We recommend that you review our credit report on an annual basis and look for suspicious or unknown transactions. You can get a free credit report once a year from each of the three major credit bureaus at www.annualcreditreport.com.
Get a copy anytime directly from:
Equifax: 1.800.685.111 or www.equifax.com
Experian: 1.888.397.3742 or www.experian.com
Transunion: 1.800.916.8800 or www.transunion.com
Credit scores typically range from 500 to 800. Lower scores may possibly affect your loan approval. If you currently have or have ever experienced credit issues, a written explanation to your Lender will be requested.
What is an SBA Loan? Does BankNewport offer these loans?
An SBA loan is a loan offered by the U.S. Small Business Administration. And yes, BankNewport is a Small Business Administration Approved Lender. We can support your financing needs with a full complement of SBA Loans. For years our experienced lenders have led the way in SBA lending. We know the products, programs, and how to get you to a closing.
When you apply for an SBA commercial loan through BankNewport, you can be confident in your choice to work with us. The SBA offers a variety of products to help you enhance your business, including lines of credit, term loans, equipment loans, business acquisition loans, and commercial mortgages.
If you aren’t familiar with SBA business loans, that’s okay – we’re here to help. As with any of our services, we’ll be your partner from start to finish. With our SBA expertise we are uniquely qualified to match requests to the right product.
Not every business fits into a particular box, so BankNewport offers a variety of special SBA loan programs to suit your particular needs and goals.
SBA 7(a) Loan Program
The 7(a) Loan Program guarantees financing for a wide array of general business purposes. This program helps keep your commercial mortgage payment lower and improve cash flow.
SBA 504 Loan Program
This loan is ideal for commercial real estate purchases or the expansion of your business. These are delivered in conjunction with Certified Development Companies, more commonly referred to as CDCs. The major benefits of this program are long-term, fixed-rate financing, and lower down payments.
Additional information can also be obtained at the SBA website: www.sba.gov
How do I decide whether to buy or lease the location where I will conduct my business?
There are several things to consider if you want to purchase the land, building, etc. First, you must conclude that you have enough money for the down payment. Second, know whether you can afford the monthly payments. Third, ask yourself if you'll you need more money to fund this expenditure. If so, will this transaction improve your profitability?
If I decide to purchase, will I need an appraisal?
Yes, BankNewport will arrange the appraisal for you through one of our approved list of appraisers. There will be a cost for the appraisal.
If you want to lease, the first item similar to a purchase is whether you can afford the monthly payments. Second, are there any penalties to terminating the lease early? (Find out the full list of terms and conditions to the lease.) Third, are you interested in a lease that has an option to buy? If yes, ask if that is an option.
Will my Lender need to review my lease?
Yes. Your Lender will review your lease for the following items:
- Term of the lease (This should match with the loan term if requesting financing for the lease expense).
- Who pays the taxes, insurance, and any other expenses associated?
- What are the monthly rental costs/payments?
- How much was required as a security deposit?
- What will happen if you terminate your lease?
What are the guiding principles for using real estate as collateral?
Real estate is an excellent source of collateral because it is fairly stable and in a fixed location. At BankNewport, your Lender will ask you questions about your real estate holdings to determine if adequate collateral is available to secure your loan. Each question could potentially be an entire conversation in itself, because it can get in-depth! Your Lender will discuss the type of real estate accepted as collateral, whether it will be a first or second mortgage, what percentage of the value we are willing to lend, what characteristics would disqualify the collateral and are there any environmental concerns. Lots to discuss!
What should I look for when purchasing a business?
There are a variety of questions and items you should evaluate prior to purchasing a business. Not all questions or considerations will apply. These will vary based on the type of business you are looking at and the total loan amount you are requesting.
Here are a few questions we think are most important for you to consider:
- First, you should find out why the business is for sale. Is this an industry trending with a decrease in demand in this economic environment? Who is your competition? Is the competition profitable?
- What are you actually purchasing with the business (building, equipment, product inventory, etc.)?
- Obtain all financial statements, income tax returns, appraisals of building and/or equipment if applicable.
- Is there any debt associated with the business?
It is important to note that at BankNewport, we base our decisions on what is reported on the business’ income tax returns. If you are confident about purchasing and want to move forward, obtain a Purchase and Sales agreement.
The business I want to buy is a franchise. What are the first steps?
At BankNewport, we recommend that you seek the services of your attorney to review the franchise agreement and the Purchase and Sales agreement.
I need a commercial real estate loan, what can I expect the process to be like?
You can expect your Lender to ask about how the loan will be re-paid. If the loan is going to be re-paid from the business occupying the property, your Lender will request a review of the company’s financial statements to determine whether it is stable enough to pay commercial real estate loan/mortgage.
If the property is leased to tenants, your Lender will review the leases. They may also look at the creditworthiness of the occupants and their ability to pay their rent.
Your Lender will want to know the real estate value (appraisal) and or any improvement that may need to be made to the property. Your Lender should also inform you of the loan-to-value ratio the Bank will accept and the rates, terms and conditions of the loan.
How much of my money has to be invested in my business to qualify for a loan?
At BankNewport, it is our practice to ensure that 25% to 50% of your money be invested. However, there are many other variables that can make that percentage flexible. Variables such as collateral being secured, the repayment structure and the purpose of the loan can be considered.
How long will it take to receive a loan decision?
The length of time varies from loan request to loan request. It will depend on the amount of the loan you request and the complexity of the loan. At BankNewport, we don’t categorize every customer and loan request into a standard formula. We work with you as your business partner to help you meet your specific individual needs.
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