Growing your business?

Financing starts with a simple phone call to your bank

Independent and small businesses are the lifeblood of New Hampshire. While referred to as “small,” they are an outsized part of the economy, comprising 99 percent of businesses within the state, according to the U.S. Small Business Administration Office of Advocacy. Even during the pandemic, the state gained more than 400 net new operations, showing the local entrepreneurial spirit is alive.

Thousands of these businesses turned toward emergency funding — like the popular Paycheck Protection Program (PPP) — to sustain operations in 2020 and 2021. For many business owners, this was their first experience obtaining a business credit product.

Now that the urgent period of the pandemic is in the past, many business owners are looking to grow, and not just maintain, operations. Others still need financing to weather the residual challenges brought on by the pandemic, such as continued supply chain gaps and global economic impacts.

Whether a business is surviving or expanding, applying and qualifying for business credit can feel overwhelming. The good news? There are steps small business owners can take to prepare for the application process and optimize their chances of obtaining financing.

Build a relationship with your bank

As a first step, business owners should look for a bank that will meet with them and get to know their business before taking any application. Some financial institutions that specialize in small business banking assign a relationship manager to business customers of any size.

A good relationship manager should work to learn about the company’s history, short- and long-term goals, and opportunities and challenges. If needed, the bank should also help connect you to free local resources such as SCORE New Hampshire that can provide insight on how to create a strong business plan and other information.

Establish accounting transparency

The next, and possibly most important, key to securing a loan or line of credit from a bank is to have strong financial records and accounting transparency, which demonstrates that a business owner has a good handle on tracking income and expenses.

Cloud-based or off-the-shelf software can be very helpful in recordkeeping and reconciling accounts, especially for businesses that are not ready to hire a full-time accountant. In addition, business owners should consider opening a dedicated business checking account to separate business and personal finances, even if the operation is a sole proprietorship. Easy access to records and a dedicated account helps a lender evaluate your business’ income efficiently.

Business checking accounts don’t just benefit the owner when applying for credit; businesses can pass these benefits to their employees. Many banks have financial programs geared toward employees, like providing a bonus for opening a checking account, or bank-at-work programs where employees can earn special perks for banking where their employer does. Programs like these can be an excellent enticement when it’s time to recruit.

Build strong credit 

Owners without a long business credit history also need to understand that personal credit history and debt-to-income ratio can affect an approval for a business loan or line of credit. This means that items like missed student loan payments and having high debt with less income may impact the likelihood that a financial institution will approve funding.

If the funding request is not urgent, a business owner may want to spend time improving these factors if needed prior to seeking business financing, just like an individual would before applying for a mortgage.

When requesting credit, business owners should be open to multiple types of financing. The applicant should also be able to articulate how and when any credit or funds will be used. This not only helps the bank to determine if they can extend credit but means the lender can match the business owner to the best product for their needs.

For instance, businesses that need to occasionally cover invoices and other expenses may benefit from a business credit card, while an owner who wants to buy commercial real estate will need a long-term, fixed-rate commercial mortgage.

Learn which loans will be best for your business

The U.S. Small Business Administration (SBA) also offers several types of loans and may offer a better path for early stage businesses looking to grow. These loans often have longer terms than conventional loans and the SBA guarantees a portion of the financing will be repaid to the bank regardless of the borrower’s ability to pay, which means that lenders are usually more willing to approve SBA loans for business owners who may not have the credit score or history needed for a conventional loan.

SBA Preferred Lenders also have approval authority from the SBA, meaning the bank can authorize the loan directly and is often able to disburse funds quickly.

Regardless of what stage a business is in, if it will have credit needs in the foreseeable future, now is a great time to apply. Interest rates, while climbing, remain low compared with the past few decades. If the company does not have an immediate credit need, owners may consider restructuring existing debt at a relatively lower interest rate before rates climb higher.

It may be possible to lock in a new rate for a longer payback period or move into fixed-rate financing for business loans. Fixed-rate business financing is not available at all institutions, however, so inquire before deciding where to refinance.

While the pandemic and economy have brought challenges for businesses of all sizes, it also yielded opportunities that small businesses can leverage to grow and sustain themselves. With the right financial relationship and continued can-do spirit, New Hampshire’s small businesses will continue to thrive in 2022 and beyond.

Sheryl McQuade is regional president for Northern New England at TD Bank.