Money is the lifeblood of your small business, and well-timed small business loans can be the key that unlocks your company’s potential and takes it to new heights. But navigating the complexities of financing, finding the right lender and understanding the intricacies of loan options can be daunting.

In Ambro Blackwell’s nearly two decades of experience in lending to small businesses, the commercial financing expert and author of the book Small Business Loans Made Simple: Revealing Secrets and Strategies for Established Businesses has facilitated loans totaling just shy of $200 million. In this Q and A with ICSC Small Business Center contributing editor Rebecca Meiser, Blackwell helps novice borrowers achieve their monetary goals and increase their loan-approval odds.

Why is it difficult for small businesses to get loans?

It comes down to a lack of understanding about the process. Many business owners do not realize that the process [for obtaining a loan for a small business] is totally different from almost anything else that they’ve done to try to get financing for. Most of us come from a consumer background. We are consumers before we’re business owners. We typically try to transfer our knowledge from that space into another space, and it just doesn’t work that way [with small business lending].

What’s your best advice for small businesses looking to get a loan? What should they think about before they approach a bank?

This may seem contrary, but first, make sure you have a business that’s going to be successful without a loan. You want to have a really solid business because that’s what investors are lending to: the management of the business. So you’ve got to understand your business: What are your profit margins? What percentage are you likely to be able to earn after paying everything that is required in the process to provide that good or service? And most lenders want to see that you have some skin in the game, that you’ve got some interest in it. Nobody wants to be caught holding an empty bag if [your business] doesn’t pan out.

Should you think about other types of funding before you approach a bank?

[Business] credit cards are actually great because they’re easier for people to get than a loan if they have a good credit profile. [The business credit card application] is typically going to be based on more of their personal [financial history], and it gives lenders an opportunity to see how this person handles money and finances and things. They’re also great for other reasons like perks and travel and cash back. Those are things you get for using those cards. They also help with building your credit history for different agencies, like Paydex for Dun & Bradstreet. It also gives you a separation in terms of what you’re exposing when it comes to risk management because if you use your credit card, a lot of times you get better fraud-protection control. But what most people really need is more liquid capital, not just funding for small-time purchases. Credit cards, though, are a great way to get started in the process.

What are the biggest mistakes you’ve seen from small business owners approaching a loan?

The first thing is the request. A lot of people make the wrong request or don’t know what to request or how to request it. Sometimes people are asking for funding for one product that should be used for something totally different. For example, asking for a small business line of credit doesn’t make sense to buy a building. A line of credit is best for short-term purposes or gaps in working capital and not long-term uses like a business loan. And if you don’t have a relationship with that lender, whoever that is, that individual is automatically going to be thinking: “OK, I’ve got an uphill battle on my hands.” Another is asking for a range of money. That’s sort of like going to the gas station and saying: “OK, well, I’m going to need somewhere between five to 15 gallons.” Come on. You know you need X amount to get to a certain destination. And you need to make sure you are asking for exactly what you need. If you’re baking a cake, you want to make sure you have exactly what you need. If you only have half the ingredients, it’s not going to turn out the way you really want it to. So the request is really important. You need to understand what to ask for, how to ask for it and what you should be asking for and explain well how it would be used.

You talk about the importance of relationships in lending. What does that look like on a practical level?

Ultimately, you need to talk to whomever it is that you’re looking to work with. If you’re going to a broker, you need to make sure that they’ve done this before. You need to get references. You need to be able to ask a lot of questions. I always say: “Ask what when, who, where, why, over and over again.” And keep peeling the onion back. If you’re at a financial institution, ask them the same questions, and add: “Do you like my industry?” I’ve seen some scenarios in my past where people are going to places that have no interest or capability for [lending] to that industry. There’s typically a lender for almost every industry. It’s on you to know which ones of them have an interest in your industry. You also need to make sure [your lending representative] has time for you. They might be the No. 1 producer and the most connected person, but you may be No. 15 on their list.

Do most know the difference between the lending representative they’re dealing with on the front end and the underwriter who’s making the decision in the back?

People understand, at least to some degree. There’s always this concept of “There’s the big bad underwriter” who loves to stamp “no” on the form. But I’ve seen instances where underwriters have sat down and said: “OK, let’s set aside an hour to try to figure out how to get this done.” That’s one of the things that the population doesn’t understand.

What should you do if your loan is denied?

Find out why. That’s the No. 1 thing. Personally, I look at rejection the same way I do everything in life: that “no” means “not yet.” There’s many possible reasons why your loan was rejected. It could be anything from your credit profile may not be as strong to the fact that your industry is declining. And sometimes it could be really minor. You might just be with the wrong lender or an institution that just doesn’t do this business. You really want to know the information because then you’ll be better prepared and informed and you’ll know what to work on for your next application.

Can you explain what the five Cs are in terms of loan approval?

They’re the baseline of what institutions and lenders normally look for.  You’ve got capacity: Are you able to handle the volume, are you able to handle the lending? You’ve got conditions: What’s going on in the market? What’s going on the industry? Then there’s credit. Bankers are going to want to know your credit and your credit history. And you’ve got collateral, which is an asset used as loan security. And then there’s character, which for me is the most important out of all of them. Let’s put it this way: You can have 18 different repayment sources, but if you’re not someone that’s a good character, someone a lender or representative wants their name or reputation tied to, [your loan application] will sink all day. There’s a little bit of wiggle room with the others Cs, but there is no wiggle room with character.

What are your thoughts on applying for a loan right now when inflation is so high and approval rates are dropping?

Lending is a fuel and a tool, so there’s always going to be opportunities. The reason for lending is it gives you more capacity. Businesses still have to keep moving, but this is where [your] “board” — your attorney, your banker and your CPA — are going to help make sure that that you’re using debt wisely. If you have the right amount of debt, the lender is going to want to make sure that you’re able to pay. One of the things that a lot of lenders will do is they’ll look at how much [sales] your business is doing. And that’s one of the reasons why sometimes lenders want your financials every year: because they want to make sure that the checkpoints are in place, that you’re still going to be able to handle the capacity. So everyone’s in play to make sure that this ball keeps rolling. It’s always a great time if your business will support the need for capital or for lending.

Is there anything else small business loan seekers should know?

Plan for your credit. Plan for your lending if you can. The end of the year is a great time to start doing year-end planning for next year. Whatever you file for your taxes, that’s what you’re going to be using to try to get funding in 2024, so there might be adjustments that you may be able to make. Talk to your CPA. Talk to your accountant. Tell them: “I’m thinking about going to a bank or whomever for financing next year.” They should be able to help plan with you.