Every business needs capital from time to time and according to the National Small Business Association’s 2017 Mid-Year Economic Report, small business owners have been getting adequate financing easier than in previous years. Whether just starting out or expanding an existing business, you may need funds to build working capital, purchase equipment, or meet other needs. But getting a loan isn’t easy. You’ll need to start preparing well in advance to assemble all the information a banker will need to approve your loan. It’s also very helpful to learn about the factors that influence bankers the most in making lending decisions.
When you apply for a business loan, one of the first steps bankers will take is to review your credit report. Before you submit your application, find out your credit score and review your credit history to prevent surprises. Any incorrect information should be corrected before you apply for a loan. In addition to your personal credit history, you may also have a business credit history you’ll want to review.
There are dozens of documents you’ll be preparing and assembling to supplement your loan application. These range from business plans and marketing research information to financial income and cash flow statements, and more. Having these documents available – before you are even asked – can speed up the loan application process and help you make a good, professional impression on your banker.
Your loan application will definitely be evaluated based on your finances and your business plan, among other particulars. But bankers also appreciate additional data on your industry and projections for its growth. You can find this type of information in trade publications, your trade organization, and at government agencies such as the US Bureau of Economic Analysis.
If your financial or personal history contains any possible negative information, don’t try to hide it. On your application, you will almost certainly be asked to provide personal information such as your previous addresses and any criminal or arrest record you may have. This information will be verified – and bankers don’t like to be surprised. That means it’s important to be honest and upfront about any possible derogatory information that may surface about your personal life and financial history.
When bankers risk their money on you they want to see that you have some of your own assets at risk, too. You’ll need to show that you have personal or company assets to invest in your business. You might also be asked to sign a personal loan guarantee or post collateral to secure your loan. Doing so without hesitation shows your banker that you’re confident about your business plans.
Of course you want to put your best foot forward when applying for a business loan, but bankers know that no business is without risk. Address these risks head on so bankers know that you understand potential risks and threats to your business success. If you don’t, your banker may think that you haven’t carefully considered these issues or don’t have any contingency plans for addressing them. Bankers will be realistic about what they can recover from your business if you fail, so you should be realistic, too.