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Wednesday, August 7, 2013

Need a Commercial Loan? Are You Ready for One?

In order to be considered for a loan for your business there are several things that you can do to prepare yourself and your business to be a prime candidate for a loan.

Get to know your business banker.  Bankers are more likely to advocate for and extend a loan to business owners they know.  Develop a relationship with your banker and take some time to work on the relationship.  Once you have selected a bank or even a credit union for your business, introduce yourself to the branch manager and other key personnel.  Visit the branch periodically to keep in touch.  Even invite the banker to your place of business so that he can see your operation and become familiar with the way you do business.

Since 2008 lending has remained tight.  Banks have developed and tightened their lending criteria.  However, they will pursue business with the right candidates, those with good credit and a history of strong earnings.

What do they review?  They will look at your personal credit history in addition to your business’s financial statements.  So it is important for you to keep it clean.  Check your credit reports for any discrepancies in both your business and personal credit and report them in writing to the appropriate provider.  Be prepared to explain any items on the report.  Credit reports often contain errors that you can correct before applying for a loan.  Sometimes credit reports are out of date, lacking more current information that might make your business look better.  If a credit report notes a problem that has since been rectified, be sure to include an explanation when you apply for a loan.

Often a banking institution will want to see your updated business plan and other relevant information.  Before you make that loan application, get your paperwork in order – two or three years of financial statements, personal and business tax returns and other relevant information.

The business plan should include what you have accomplished since you created the business and what you plan to do in the next five years.  So take the initial business plan you created to start your business, and revise it to include your projected revenue goals and how you plan on getting there.  The plan should reflect growth, contraction or other changes to you business.

In considering your loan application, the lender will determine your capacity to repay the loan in addition to the economy, your competition and other factors that may impact your business.  They will look at your financial statements and cash flow.  Be realistic about how much money you want to borrow and be approved for.  So, if the company has annual revenues of $100,000 and you want to borrow $1,000,000, you may have to reconsider and adjust your expectations.

If you do not qualify for a traditional loan your may be able to get approved for a Small Business Administration loan.  Because the federal government guarantees a major portion of the loan, lenders may be more willing to extend an SBA loan to you if you are just shy of meeting the criteria for a traditional loan. Lenders want to make sure that they will be paid back, so if you don’t have sufficient business assets to post as collateral, you might have to put up your home or other personal assets. 


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    Hard money loan

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