Sep 3, 2014

Small Business Loan Basics

Securing a loan for your business is an intimidating process; it requires patience, time, and a great deal of documentation to complete. However, with proper planning, you’ll find that grueling loan process is definitely something you can handle. It’s all about preparation. The first step is to get organized, neatly gather required documents, and mentally prepare to answer questions about your business. If you can illustrate to potential lenders that you are confident in your business, fiscally responsible, and can provide a solid plan – securing a loan will be easier than you think. Although different lenders may require more or fewer documents, here is a general checklist of what you will need:

A Detailed Business Plan – This document provides a detailed explanation of what the business is and where the owner hopes to take it.
A Repayment Plan - Map out how long will you need the money and be able to provide a specific plan for repayment.
Credit Report – Your lender will obtain your personal credit report as part of the application process. Get a credit report from three major consumer credit rating agencies before submitting a loan application to the lender. If there are inaccuracies or blemishes on your credit report, try to clear up as much as you can before beginning the application process. If you are already in business, be prepared to submit a credit report for your company also. A score of 650 or higher is generally considered to be a good score.
Tax Returns – if your small business is already established, show any tax returns you have to the lender. This will give them a better idea of your business’s financial situation.
A Statement of Your Collateral - What assets, business or personal, do you intend to use as collateral? What is their market value? What portion of their value can you use as collateral?
Cash Flow Projections – Your lender will need to believe you will be able to repay the loan on schedule. Have a good idea of how much cash your organization has freely available and understand that the timing of cash income and cash outgo comes down to the operating cycle of your business. Make a record of your cash flow patterns.

Make sure required documents are orderly and exact. All the information you provide will be verified by your funding provider and kept by the organization guaranteeing the loan, so be sure to keep personal copies of all documentation. And remember, while it’s tempting to pad your financial history in order to make yourself a more appealing loan candidate, false or misleading information will result in your application being denied.