| Getting Approved For That Business Loan | | | | 2. Be Prepared. |
| 1. Business Bank Loans. | | | | Be specific about the purpose of the loan. |
| This type of funding for your business will require you | | | | In your presentation or loan request you will need to |
| to provide a lot of documentation. Visit Here | | | | address the following: |
| Each bank has its own lending criteria but most of | | | | • Specifically how much money will be needed. |
| them ask for much of the same type of | | | | • A management profile. |
| documentation according to how much money is being | | | | • An overview of the market including your |
| applied for as well as they type of loan. | | | | projected customer base and competition. |
| At a minimum you should have a basic finical pack | | | | • Personal and business financial statements and if |
| prepared. You will have to check with each bank and | | | | possible, collateral that can secure the loan. |
| find out what documentation is needed to complete | | | | Typically, the lenders will want to see that the business |
| the loan process. But in most cases a good FICO | | | | owner has contributed financially to the business |
| score of at least 680 or better will be needed to obtain | | | | venture. After all if the owner does not want to risk |
| the loan. Using personal property personally as | | | | any money then why should the lenders. The lenders |
| collateral can help to obtain larger loan amounts or | | | | may also want to see what other types of financing |
| even increase the likelihood of approval. | | | | the business has obtained if it is a large sum of money |
| If your company is seeking a 6 figures plus loan, the | | | | being sought. |
| bank will be considering the 5 C's of credit in | | | | Common supporting documentation the lenders will ask |
| determining credit worthiness. So be prepared to | | | | for but not limited to are: |
| demonstrate that your company is viewed in a positive | | | | • Incorporation or LLC organizational documents. |
| light when it comes to the 5 C's of credit which are as | | | | • Proof of ownership or sale, if you purchased the |
| follows: | | | | business. |
| 1. Character: The bank assesses the trustworthiness | | | | • Material contracts. |
| of candidates for character. Factors of character | | | | • Letters of reference. |
| criteria are: business experience and knowledge, | | | | • Financial statements including personal tax returns |
| personal and/or small business credit history, | | | | for the last three to five years, a list of assets and |
| references, and education. | | | | liabilities and even credit references. |
| 2. Capacity: The business and individuals ability to pay | | | | • Business tax returns. |
| back the small business credit determines capacity. | | | | Being awarded a business loan will depend on the |
| Bankers will review the cash flow of the business | | | | lenders criteria and expectations the lender may have. |
| (profit and loss statement and other financial | | | | You will often find that one lender will say no and |
| statements) to determine alternative courses of | | | | another will say yes after reviewing the same loan |
| repayment available. | | | | request and supporting documentation. Do not give up |
| 3. Collateral: To reduce the risk of lending, collateral in | | | | and try to learn from each loan process. |
| various forms of assets is another method of | | | | Once you have been approved for a loan, you need |
| repayment. Collateral would include: equipment, real | | | | to work with the lender to obtain terms that you feel |
| estate, inventory, account receivables, and securities. A | | | | comfortable with and line up with your projected cash |
| personal guarantee (signed document) can be required | | | | flow. Also be prepared to negotiate the interest rate. |
| as an additional reassurance of repayment. Obtaining | | | | State law may dictate a minimum rate but anything |
| small business credit and providing guarantees may | | | | above that is negotiate able. |
| seem troubling, but the bank really does not want to | | | | You will also want to know what fees are included |
| exercise its position on seizing and liquidating assets. In | | | | some of these fees are common and some you can |
| most cases, the banker will work diligently to find | | | | negotiate or get waived. |
| payment solutions. | | | | 3. Getting Approved For a Small Business Loan. |
| 4. Conditions: This is a review of the small business | | | | One of the most common reasons business fail in the |
| credit or loan conditions in terms of use for expansion | | | | first year is lack of sufficient start-up capital. Most |
| or buying equipment. This also applies to the external | | | | banks will not even loan money to a business unless it |
| environment that impact a companies ability for | | | | has been operating for at least 2-5 years. 95% of |
| repayment such as: customer base, competitors, | | | | start-up businesses start with the owners own money |
| liabilities, and economics. | | | | and money from friends and relatives. The key is |
| 5. Capital: A business owners investment into their own | | | | staying persistent and not giving up. |
| company sends a message of confidence about the | | | | What will be the biggest determining factor that banks |
| business and the ability to repay the small business line | | | | look at is a companies ability to repay. Just like other |
| of credit or loan. Net-worth and equity are the two key | | | | businesses, banks must answer to investors and |
| financials used. Ultimately, a business owner unwilling to | | | | stockholders. And unpaid loans make them look bad. |
| invest their own funds in the company will often find | | | | The most common questions a bank will ask are: |
| banks are unwilling to take the first risk. | | | | • How much money does the business want? |
| Update for 2008 | | | | • Is the business profitable enough, and does it have |
| Due to the event of 9-11 as well as the recent | | | | enough cash flow, to service the debt? |
| sub-prime lending banks closing their doors, most banks | | | | • Has the business services this much debt |
| have changed their lending policies and tightened their | | | | successfully in the past? |
| lending criteria. Do not be surprised if you find that a | | | | • Does the business have collateral to cover the |
| bank still asks for a personal guarantee even if the | | | | loan? |
| loan is secured by a CD (certificate of deposit) or an | | | | • Is there a reasonable balance between debt and |
| asset such as real estate. | | | | equity? |
| The basics of business loans | | | | • Banks also want and expect business owners to |
| Business loans typically come in three primary forms. | | | | risk their own funds in the business. Why should they |
| Short-term business loans provide capital for a | | | | risk money if the business owner has not risked their |
| business in need of money to start up operations. | | | | own money? |
| Typically these are 12 month or shorter loans. | | | | The types of businesses most likely to receive loans |
| Intermediate term loans can help start-up businesses | | | | are those with a history of success in paying their bills, |
| pay for equipment and cover large initial expenses. | | | | demonstrating their ability to meet financial obligations. |
| Such loans are usually for anywhere from one to | | | | A bank will also check, and double-check, a business |
| three years. | | | | credit history. Having your business credit profile |
| Long-term loans are typically used to help start-up | | | | properly setup and having good personal credit will go |
| businesses with initial costs such as buying office | | | | a long way in helping the bank say yes. |
| equipment, furniture fixtures and commercial | | | | 4. Increasing Your Chances of Getting Approved |
| mortgages. These types of loan are usually from three | | | | There are a number of things you can do to improve |
| to seven years and repayments are made in | | | | your chances of securing a bank loan. Here are a few |
| installments. | | | | of the most important: |
| Before approaching a lender it is important that you | | | | A sound business plan. |
| have a clear understanding of what the loan will be | | | | Having a solid business plan is your best shot at getting |
| used for and how you can best present this | | | | a loan. The executive summery is the most important |
| information. It is equally important that you have a | | | | part of your plan as this is what the lender will look at |
| realistic plan for repaying the loan. After all being able | | | | first. If they like what they see they will read on. |
| to show the lender that there is sufficient cash flow in | | | | Having at least a 25% equity stake in the business. |
| your business to service the loan or even being able to | | | | Banks and lenders like to see that the owner of the |
| show a history of successfully servicing a similar size | | | | business has a financial stake in the business. If the |
| loan will go along way to getting approved for the loan. | | | | owner is not willing to have skin in the game sort of |
| When working on a loan request, you want to include | | | | speak they why should the lender risk their money. |
| the following, some of which will likely be included in | | | | Good personal credit. |
| your business plan. | | | | |
