Now May be a Good Time for a Business Loan

Thinking about expanding your business, purchasing new equipment, making leasehold improvements or maybe you just need more working capital.  Now may be a good time to apply for a business loan.  Interest rates continue to be low, banks have money to lend and the Small Business Administration is waiving the guaranty fee on loans of $150,000 or less through September of this year. 

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.