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out of date, lacking more current information that might make your business look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.
