5 Tips When Seeking a Small Business Loan
Applying for a small business loan or line of credit can be a critical step in opening or expanding a business. To ensure a successful relationship, prospective lenders will request documents and ask questions about you, your business, and your goals.
Nov. 29, 2016
Applying for a small business loan or line of credit can be a critical step in opening or expanding a business. To ensure a successful relationship, prospective lenders will request documents and ask questions about you, your business, and your goals. Being well-prepared can help you demonstrate the creditworthiness of your business. Most community banks are committed to helping you expand your business.
Here are five ways to get ready:
1. Create a Business Plan
Lenders like careful planners. Be sure to have a clear, detailed explanation of your business and its goals. Be ready to discuss your products or services, your industry, and the steps you are taking to build long-term success. Also, be prepared to outline the purpose of the loan, whether it’s to open a new business, finance an expansion, secure equipment, or start a new service line. You will also need to document your ownership structure: LLC, Sub S, sole proprietorship, etc. Your business plan should include a careful market analysis and information about your competitors.
2. Prepare Your Financial Statements
Your lender will want to review your financial documents too. Bring both personal and financial statements. The balance sheet will summarize assets, liabilities, and shareholder’s equity; and the profit and loss statement will show your financial results over a period of time (cash or accrual). And make sure you prepare projections for the business’s future revenue and expenses in order to demonstrate long-term stability.
3. List Your Collateral
You will need to show you have assets that can serve as collateral. Depending on your business and personal circumstances, collateral can include:
Accounts receivable Cash and deposits Business equipment Inventory Real estate holdings
4. Understand Your Options
It’s important to know the different loan types available and how they can support your business. We can show you an array of business loan options, including:
Business term loans to meet one-time financing needs, such as renovating your facility or purchasing equipment Business lines of credit to provide flexibility for short-term cash flow Commercial mortgages to give your business room to grow
5. Have the 6 Cs
A lender will often discuss the following factors, also known as the “6 C’s” when determining your creditworthiness.