If you are applying for a business loan, the most important factor to keep in mind is to be prepared. Part of this preparation is understanding what lenders will need to approve you. [pullquote-right]Lenders make their profits from lending money, they’re not in the business of saying no.[/pullquote-right]They deny your application when it doesn’t meet lending requirements, which are much stricter now than before the financial crisis. But be aware that start-ups are almost always considered risky bets, and many lenders are reluctant to finance them. Also know that many larger banks won’t even consider small loans, which are less profitable than larger loans but require the same amount of time to analyze and administer.
Don’t let these hurdles discourage you. If you are organized, the chances of obtaining the funding you need will improve. There is no set loan minimum or maximum. Lenders are searching for clues that your business will be able to repay the loan. Most financial institutions will expect the loan to be fully secured, either with business assets or personal collateral. Having some skin in the game, meaning you have your own equity invested in the business, strongly works in your favor.
Lenders will also be looking at you—your personal finance record, your credit score, your assets, your work experience, and your character. Once you’re ready to make your request, be prepared to provide the information the lender is requesting, in depth, for each of the categories listed below.
- Purpose: What will the funds be used for? (Note that banks won’t lend for speculating, passive investments, pyramid sales or gambling.)
- Amount: How much money do you want to borrow? Why that particular amount?
- Term and Repayment Plan: For how long will you need the money and what is your specific plan for repayment?
- Collateral: What assets, business or personal, do you intend to use as collateral? What is their market value? What portion of their value can you use as collateral?
- Asset and Liability Statement: Your current, complete business asset and liability financial statements (your balance sheet).
- Current Income and Financial Performance Statement: Your current, complete business statement of income and expenses (your profit and loss statement, or P&L).
- Business Plan Details: Your written plan for your business including goals and action steps, timetable, resource allocation, funding required, and related financial data. You may be asked for cash flow projections for at least a year.
- Historic Financial Performance Information: Past business financial performance information under your ownership or under the previous owner’s ownership. Normally, a lender will want to that a business has been operating for at least 2 years.
- Other Information As Required: Information about you (your resume, your loan Guarantor—someone who will pledge his/her assets and financials to guarantee repayment of the loan should you default. Guarantors can be a legitimate tipping point factor in getting a “yes” to the credit request.
If you keep these factors in mind, the chances of getting the loan application approved increases. The key is to paint a picture which will naturally lead the lender to seeing the loan as benefit to both parties.