Key takeaways:
- Sharing your business strengths and challenges with your lender upfront builds trust while hiding issues can lead to denial or having the loan pulled after approval.
- Coming to your lender with a plan for how much money you need and how you will use it helps the lender structure loan terms that work for your business and specific cash flow.
- Having these conversations long before you need funding establishes a relationship with your lender and allows you to understand lending requirements.
Here’s the scenario: A profitable business needs a loan for an expansion. The owner meets with a lender and thinks the conversations went well. But then the application gets denied or they don’t get the full amount they expected. What went wrong?
This scenario plays out more often than you’d think. Even though a business owner feels the conversation went well, there are a few key things that make a lender lean towards denial rather than approval. Sharing successes but glossing over—or worse—hiding challenges, not saying how the money will be used, and not being able to show what success looks like can mean a denial, even for a strong business.
Communication with your lender is crucial to funding approval. In fact, your communication with your lender matters almost as much as your financials.
We recommend having these five conversations with your lender to build trust early, so, in return, they can provide a loan that works for your business when you need it.
Conversation #1: “Here’s what’s really happening in my business”
Business owners tend to focus on positive information when talking to their lender. It makes sense to show the business in the best possible light, right? Not quite.
While you obviously want to highlight the positive parts of your business, you also need to be upfront about things like past credit issues, bankruptcies, and foreclosures and your current business challenges. This type of transparency gives your lender a full picture of your business. When they do their due diligence, they’ll find these issues anyway, so being upfront about them, even if they’re far in the past, builds trust and saves time.
Lenders use their discretion to approve or deny loans based on factors beyond just the business financials. If the lender doesn’t believe that you’re being honest and upfront, you’re likely headed for a denial. Worse, if the lender finds out that you hid something after the loan is approved, it could lead to larger issues like revoking the approval or requiring short-term payoff of the entire loan.
Conversation #2: “Here’s how my business makes money”
A strong grasp of your business model and how your cash flow and profitability work increases lender confidence in you and your business. However, if you struggle to explain how your business makes money and seem like you don’t understand your cash flow, it makes lenders nervous.
Share metrics like gross margin, customer acquisition cost, average customer value, and seasonal cash flow patterns along with whether your profit comes from smart pricing, repeat customers, or operational efficiency. When lenders understand these details about your business, they can design a loan that actually fits how your business works, helping you grow instead of creating problems.
Conversation #3: “Here’s exactly how I’ll use my loan, with numbers”
Vague statements like “I need money to grow” won’t get you approved. When you meet with a lender, you need to know exactly how you’re going to use the financing. This means assigning specific dollar amounts for each use with an expected return timeline.
When lenders see how you’ll use the financing, they’re able to structure loan terms that fit your needs. Make the math simple and clear and show when you expect to see returns in the form of revenue increases, cost savings, capacity expansion, or cash flow improvements. Being prepared with this information may even unlock larger loan amounts once the lender sees how the money will impact the business.
Conversation #4: “Here’s what success looks like and what could go wrong”
This is another conversation where honesty wins the day. When you’re sharing your optimistic plan for the loan, you should also balance it with your realistic concerns. This shows that you’ve thought through the risk, and you’re not blind to potential issues.
Think about the big picture of what your business could look like with the loan and identify your biggest risks. For each risk, explain your plan to address it. You should also identify what success looks like. This could be cost savings from an equipment upgrade, the ability to improve cash flow with bulk discounts, or an increased customer base because you expanded.
Remember: lenders offer better terms to borrowers who demonstrate they’ve thought through what could go wrong just as much as what could go right.
Conversation #5: “I don’t understand this term. Can you explain it?”
No one wants to look uninformed, especially when asking for large sums of money, but this is a dangerous mistake. Nodding along when you don’t understand something or signing documents you don’t fully grasp creates problems later. On the other hand, asking questions and making it clear that you want to understand the loan and lending process, shows you’re engaged and detail-oriented. It also prevents surprises later on.
When you meet with your lender, come with questions about the loan terms and conditions and ask for clarification when you don’t understand something. Your willingness to learn and understand the loan and the terms builds lender confidence in not only your ability to pay back the loan but also in you as a person.
Build a lender relationship on trust and communication
Small business lending isn’t just a transaction, it’s a partnership that can last decades! The best loans are made, and your business will be healthiest, when lenders understand your business and your goals.
Believe it or not, you should have these conversations with your lender long before you actually need funding. If you rush into your lender’s office in a time of crisis, it may be too late for the loan to solve the problem. Instead, be proactive.
Schedule a time to talk with your lender about what’s going on in your business today and your plans for the future. In these conversations, you’ll learn the lending requirements and identify gaps early, so you can prepare for funding needs down the road.
When the time does come to pursue financing, you won’t be starting from scratch — you’ll be building on a foundation of trust. Whether you work with Grow America or your local bank, these conversations don’t just improve your chances of approval. They make you a more prepared, confident, and resilient business owner ready to grow when the time is right.