Tuesday, September 16, 2014

What to Prepare When Applying for a Business Loan

All about business loan
Business owners must juggle their precious time. You are the IT guy, sales force and operations manager. The hectic schedule may prevent you from having the time to expand. A business loan provides capital so your company moves past day-to-day survival.

Lenders often ask for common financials for different loans. You can make the process more efficient by preparing documents and anticipating questions.

So, what should you have ready? Here is a checklist to prepare:

6 months of Bank Statements:

Banks prefer “seasoned” bank balances, meaning money that has been in your account over a longer period. This prevents borrowers from having family and friends infuse cash to enhance their application. Loan officers will also check your average balances relative to the loan amount.

A lender feels more secure with liquid borrowers who can make loan payments even if their revenues dip.You should review statements for any drops or spikes that may raise questions. For instance, you may have just been paid on a large receivable.

Most Recent Income Statement:

An income statement (IS) gives a snapshot of how profitable your company is. It is important to provide the most current IS for your application. Companies may lose customers or market advantage in just a short time. Lenders want to review your most current financials to make an informed decision.

If possible, give a YTD income statement updated for the month of your application. This limits the chances a bank will ask for more information, which expedites the process. Even if declined, you have more time to pursue alternatives. (More on these later)

Current Balance Sheet:

What are your assets and liabilities? Is your company liquid or would it take time to turn assets into cash? What is the ratio between short and long term liabilities? A balance sheet answers each of these questions.

A balance sheet also gives clues into alternative choices. As an example, high A/R may qualify you for factoring, where lenders buy your receivables at a discount. If you own fully depreciated machines, an equipment loan improves productivity and has depreciation expense, which is a tax write off.

Credit Checks (Business and Personal):

Do you have a business credit history? Banks will check the payment history of your business tax ID. A personal credit check is also performed. To avoid surprises, get copies of your credit reports from the major bureaus. (Experian, Transunion, Equifax)

Depending on when the money is needed, entrepreneurs can build their business credit history in advance. For example, banks may approve business credit cards with small limits for those with fairly strong FICOs. Make sure the card is approved under your business name. Sole props will rely on personal credit for financing

Declined for a business loan? You should understand why your application was rejected and adjust accordingly. Startups may simply need more time, whereas other companies must become more profitable.

Meanwhile, there are alternatives with easier approvals. Consider these options for funding shortfalls:

● A/R Financing: Sell receivables at a discount to face value.

● Niche Business Loans: (Nightclub Loans, Bar Financing)

● Merchant Loans: Cash in exchange for a % daily credit card sales.

● Equipment Financing: Overcomes issues of collateral coverage.

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