This posting provides general information to help the
business owner prepare to apply for a business loan whether conventional or
SBA.
Here are steps to take prior to talking with a business
banker:
1.
Document the amount of the loan you need, why
you need it, and how you will use the proceeds.
Have specific quotes in hand if you are thinking about purchasing equipment.
Describe what the equipment will do for your business (expansion, increase
productivity, lower costs, etc.).
Provide a clear explanation of what the loan will do for your business
whatever the reason
2.
Demonstrate your ability to repay. You will need to show the lender how you will
repay the loan and the sources available for repayment. A pro forma cash flow statement showing the
amount of cash your business will generate over the term of the loan will be
helpful. Other sources of income if any
should be documented. Know the value of
your business property that may be pledged for collateral if applicable. A personal guaranty may be required. Personal guaranties should be avoided
wherever possible; however, if there is insufficient collateral this may be
unavoidable.
3.
Submit a business plan with your loan
application. This is not always a
requirement, but a well prepared business plan can go a long way in persuading
a lender to make the loan. The business
plan will describe your business, the industry and market you operate in, and
your management team if applicable.
Financial statement projections should be included (balance sheet,
P&L statement and cash flow). You
can get more information on preparing a business plan by going to the SBA web
site, www.sba.gov.
4.
Your lender will require documentation with your
loan application. Be prepared to submit
copies of financial statements, tax returns, and lease agreements. Lenders may request copies of employment
contracts with key employees and contracts with major customers that could
significantly impact the business. The
amount and type of loan will dictate the documents required.
It is also a good idea to check your credit history to
correct any errors prior to applying for the loan. Also, let the lender know if you or your
business is involved in any litigation and the status of the litigation.My next posting will cover the types of SBA loans available. SBA loans are government guaranteed, and in some cases these may be the only type of loan available to your business. The SBA is helping to make financing more accessible to small businesses.
