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A Step by Step Guide on How to Get a Business Loan

Copyright (c) 2010 Trey Markel

On December 17, 2008, the prime rate in the United States was dropped from 4.00% to 3.25%, the level that it currently stands at right now. The lower interest rate was initiated by the Federal Reserve to stimulate lending to individuals and businesses, the first salvo in the war to combat economic recession. On the surface, it appears to have made very little difference. The economy in the United States still declined and unemployment rose to a record high rate of over 10% in some states. Despite that, there's no way of knowing how much worse things would be, were it not for the lower prime rate. Today, as the nation crawls out from the hole it's been in, businesses are beginning to look for funding to expand or in some cases just to stay afloat.

There is a process involved in getting this funding, requiring a step by step approach and some knowledge of exactly how to get a business loan. That process begins with an evaluation of needs, continues with an examination of loans and funding options available, and hopefully culminates in a business loan which will help your company achieve its goals. It's not as simple as it once was, when all you had to do was show up at your bank and put some collateral up to get a loan. Credit score is now a factor, as is credit and payment history. The nature and success rate of businesses in your industry will also be taken into account. After what was a horrific three year period for banks and lending institutions, you're not going to be approved for a business loan without some heavy duty footwork on your part.

Evaluating Your Needs for a Business Loan

Just because you can do something doesn't mean that you should. Before you apply for a business loan, evaluate the reasons why you need one. The economy is improving. Are you running in the red right now or are you managing to pay your bills and make a small profit? Taking out a loan to increase profit margins is one thing, but is the debt you're taking on worth the return you'll get back from it? Make sure when you calculate these numbers that you include the interest payments and any fees the bank charges. Add up total cost and then project returns and how exactly those returns are going to be realized. There has to be a plan of some kind and the bank will want to see it before they give you anything.

Where to Go for a Business Loan

A Treasury report released at the end of last year showed that major banks had decreased business loan balances by $1 billion in the last quarter of 2009. These were the same banks that received TARP funds from the federal government's bank bailout. Justifying the cuts as prudent management, they nonetheless all pledged, after some pressure from the Obama administration, to increase lending in 2010. Some of those pledges of more business lending came from major players in the banking industry. Bank of America (5 billion more), Wells Fargo (25% more), and JP Morgan Chase ($4 billion more) have all increased their lending this year, though much of the JP Morgan Chase lending is in the form of business credit cards.

There are also online resources available, including sites that will shop your loan request around to various banks, financial institutions and private lenders. There are different types of business loans, including working capital loans, merchant account advances, secured and unsecured loans. You can borrow against money that is owed to you and you can use your credit card receipts from recent months as proof of your ability to pay. You can even sell your future credit card sales or accounts receivables, an act that doesn't technically qualify as a loan, but bears mention here. No matter which way you go you'll be facing the same questions and need the same set of numbers to back up your request for funding.

What do Lenders look for in Business Loan Applicants?

A simple rule of thumb when doing a self-evaluation of what the bank will look for is to look at the five C's: Character, Capacity, Collateral, Capital, and Conditions. Character is about you and your credit score and history. Capacity is proving your ability to pay. Collateral and Capital are very similar. They both offer a guarantee to the bank that you'll pay them back. Conditions refer to your knowledge of your own industry and the plan that you have for use of the money you're going to borrow. If you did your homework in the earlier step "Evaluating Your Needs for a Business Loan" this should not be a problem. The bank or lending institution will see that you have a definite plan for the improvement of your company and look upon that favorably.

Communicating with the Lender: How to finally get a Business Loan

Once you've evaluated your needs for a business loan, asked yourself all the difficult questions about credit-worthiness, and chosen a lender to apply to, it's time to walk through the door and present your case. Communication is the most important element at this stage of the loan process. You need to have the ability to explain what you want, why you want it, and how you plan to pay it back. Have a solid business plan in hand, with a detailed explanation about how you will use the money from a business loan and what you plan to do about paying it back. The financial information you present about your company should be current and accurate. The bank will turn you away of you try to rely on the successes of yesteryear. You'll also want to present alternate sources for repayment should the first plan not succeed. Remember the climate you're running a business in right now and what the banks have been through recently. If you cross all your t's, dot your I's, and anticipate any questions you'll be asked, there's no reason why you shouldn't be approved for a business loan.

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Health insurance quotes reform Obamacare updates

Health care spending projections for the next decade, published in the journal  Health Affairs last week, appeared to have a little something for everyone. Prepared by Medicare's Office of the Actuary, the report notes that health care spending will increase 0.2 percent faster than previously projected due to the health reform law's many changes to the system. As a result, The New York Times proclaimed that the "health plan won't fuel big spending," causing an annual spending increase of 6.3 percent rather than 6.1 percent. The Christian Science Monitor, on the other hand, warned that reform will definitely cause health insurance costs to rise and that Americans should be on guard for big increases in 2014 when many of the law's major provisions kick in. Spending on health insurance is expected to increase 12.8 percent in 2014 as millions of uninsured Americans gain coverage. However one interprets the results of the report, it is clear that rising health care costs remain unfinished business.

ARIZONA: The Senate has established an Ad-Hoc Committee on the Impacts of Health Care Reform Implementation. The Committee will hold its initial meeting later this month. The preliminary agenda includes: Arizona Health Care Cost Containment System (Medicaid) requirements; insurance reforms; impacts on health care providers; and tax implications. Members appointed to the committee include AHIP retained counsel, clinical and employer representatives, and representatives of the Goldwater Institute, a conservative think tank.

COLORADO: The Division of Insurance (DOI) has applied for a $1 million health insurance exchange grant. If awarded, the funds will be used for research and developing recommendations for implementation of an exchange. Specific areas mentioned include modeling on adverse selection, value choices, increasing actuarial staff and determining the actuarial effects of benefit packages within an exchange and in the external regulated market. The Department of Regulatory Agencies finalized three regulations that define the standardized electronic identification and communications systems to be used by all health plans operating in Colorado. The regulations are the result of 2008 legislation requiring carriers to use systems certified by the Committee on Operating Rules for Information Exchange (CORE). Carriers must be able to demonstrate their compliance by Sept. 1, 2012.

DELAWARE: The Department of Insurance (DOI) has issued a bulletin regarding recently enacted legislation that prohibits rescissions based on medical claims underwriting. The legislation signed into law by Governor Markell on August 30th prohibits rescission, cancellation, or limitation once an enrollee is covered, except in cases of fraud or intentional misrepresentation of a material fact. Effective Sept. 23, 2010, prior approval by the Commissioner or her designee is required before a health insurer may rescind, cancel or limit existing coverage based on written health or medical information.

LOUISIANA: The DOI has applied for a grant related to health insurance exchanges. Aetna, along with the Louisiana Association of Health Plans, will participate in a meeting with the DOI to discuss the grant and other issues related to health care reform.

NEW JERSEY: The Department of Banking & Insurance (DOBI) last week issued a bulletin providing template contract riders that insurance carriers can use for the large group market and the (non-reform) individual and small employer markets to describe changes to comply with the Patient Protection and Affordable Care Act (PPACA). The rider templates, which may be used by carriers without submission to DOBI for formal review or approval, address the following health benefit plan requirements: Extension of coverage to dependents; annual and lifetime dollar limits; first-dollar coverage of preventive services; limitations on preexisting condition exclusions; and rescissions. A carrier not using the rider template must submit their own forms for DOBI's formal review and filing, or approval to bring benefit plans into compliance by September 23, 2011.

OKLAHOMA: DOI Commissioner Kim Holland and staff hosted an informational stakeholder meeting last week to discuss the DOI's plans for creation and implementation of Oklahoma's exchange under the PPACA. DOI intends to use issue-specific working groups to manage the task going forward. The state's online Medicaid enrollment process went live September 7 and processed over 2,000 applications with a 60 percent approval rate the first 28 hours. Over 400 apps came from hospitals that provided overwhelmingly positive feedback. This web tool was referenced as a possible "starting point" of the exchange's eventual infrastructure. The DOI submitted an application for a $1 million Exchange Planning Grant in August and expects to hear a decision from HHS by the end of this month. If awarded, the money will be used, in part, to hire a consultant to assist with an RFP to hire a vendor to help build the exchange. Other topics of conversation focused on the more technical and difficult aspects of building an exchange, such as coordinating billing/payment through employers, collecting and reporting data on those entitled to tax or premium credits and cost sharing subsidies,   allowing/finding/identifying navigators to assist consumers, and deciding if any additional state benefits/mandates would be included in coverage. Aetna will stay active in this process by serving on future workgroups when appropriate.

WYOMING: The DOI has submitted its plan for a health insurance exchange grant to the federal government. The DOI will use $800,000 to fund a study, to be overseen by a Governor's task force, of the feasibility of three exchange options. The options include (1) operating a Wyoming state exchange, (2) participating in a regional exchange, or (3) allowing HHS to run the exchange. This study would occur in two phases:  phase one would help educate task force members and consult with stakeholders and experts on operating an exchange in the state;  phase two would include implementing the recommendations of the task force if it is decided that Wyoming should participate in the operation of an exchange. DOI has indicated that no legislative action is necessary to carry out the duties of the grant, unless the state decides to pursue the operation of an exchange. The white paper also outlines that several key governmental agencies will participate in the efforts, which will be facilitated by the University of Wyoming.

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