Maggie Ference

Small business owners employ nearly half (47.5 percent) of the U.S. workforce and deservedly occupy a lionized place as the job creators that drive America’s economy.

They’re visionaries, problem-solvers, risk-takers and the cleaning staff, all at once.

But, what they also share is a dependence on credit and loans to provide the fuel — or increasingly, the electric charge — to power up their businesses before revenue comes chugging along.

Whether it’s paying web and mobile developers to build platforms and secure payment channels for your tech startup, or renting space and buying equipment to open a dry cleaning business, getting started requires being able to spend significantly upfront. That means getting a financial institution involved, but unfortunately, way too many entrepreneurs think the money is all they’re in the market to get.

That’s a critical mistake, and it certainly contributes to the fact that 90 percent of startups don’t make it. Many entrepreneurs take for granted who they will bank with, either going to whoever they personally bank with, or selecting whoever can offer the biggest line of credit.

But there’s so much more to consider that are in many ways as important as hiring some of your early executives. That’s why entrepreneurs should interview their prospective banks.

Here are three questions you should start with that should make a big difference:

— What would you say your unique strengths are?

You’ve probably answered this question before on a job interview. Different banks have different specialties. Along with a loan, you’re getting relevant expertise. If you’re a doctor looking to open a new practice and you need to buy imaging systems, you’ll almost certainly be better off with a business banker who knows how medical practices are run than if you’re working with a business banker whose primary experience is with bakeries and restaurants.

— Can you tell me about the potential fees I might incur associated with my potential loan?

When you’re creating your early stage business plan, there’s not a lot of margin for error, so any hidden fees you get hit with can really hurt cash flow. When you’re thinking about a loan, the interest rate only tells you what it costs to take out the loan. If you look at the annual percentage rate (APR), it factors in all fees. So, look at APR. Ask the bankers to walk through their fees as well — especially payment deadlines and late penalties. You’ll be happy you did this.

— Can you share with me a few references of current and past clients?

Everyone knows speaking with references can be extremely helpful. Everyone also knows that when someone provides references, they’re highly curated. You can cut through the clutter by asking follow-up questions. Ask for anecdotes. And if you like what you hear, ask if you might be able to speak with those who were mentioned. It is hoped you’ll be able to speak with fellow entrepreneurs whose experiences are highly informative to you. Maybe it even leads to cultivating a valuable contact, moving forward.

The question that’s most important is, without a doubt, the follow-up question. If you ask about unique strengths and the answer is working with early stage companies, ask about those companies. What sector are they? What type of growth paths do they follow? Is the banker working more with companies looking to build headcount ambitiously, or are they seasoned with sole practitioners?

Remember, you’re not just getting money to start your business. You’re getting expert business advice, possibly supply chain know-how, and it is hoped even a network that helps you be able to keep your focus on executing on your big idea.

Maggie Ference is the SBA Program Director at Huntington National Bank. She wrote this for InsideSources.com.

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