Understand what lenders and banks look at when reviewing a loan application. This includes your personal credit and financial history, and the financial details of your business.
Lenders will want to see a strong ability to repay the money you borrow, so you should prepare your own business plan and documents that clearly demonstrate how you will have enough cash flow to cover business expenses and loan payments.
Know What You Want
Lenders have different requirements for business loans, from minimum credit score to maximum loan amount. You should research lenders and understand their guidelines before you start the application process.
Depending on the type of loan, you may have to provide a variety of documents, such as your business plan, financial records, and sales forecasts. It is best to organize these documents before you meet with your lender, so you can easily find and provide them.
Having clear understanding of the financing you need can help you secure the most advantageous terms. For example, asking for more money than you need can cost you unnecessary accumulated interest and prepayment penalties. It can also make your lender suspicious of your repayment discipline. Consequently, they might think you will default on your loan.
Be Prepared
If you’re a new company or startup, you’ll likely meet with a loan officer to discuss financing options. It’s best to prepare for this meeting ahead of time. Having your financial reports and projections ready will help you present a clear picture of your company’s health to the lender.
Lender profits are based on whether or not they can trust borrowers to pay back loans, so they will consider things like revenue or cash flow, business credit scores, personal and business financial history, industry and the amount of time you’ve been in business.
Be sure you know exactly how much funding you need and that it will cover all of your expenses, including interest and prepayment penalties. Applying for more than necessary will cost your company unnecessary accumulated interest and may require you to take out another loan.
Be Organized
Lenders require a lot of documents to verify your business’s financials and creditworthiness. You can make the process easier by being organized before applying for a loan. Use a bookkeeping system to keep all your financial information in one place, and set up cloud-based tools that will allow you to send invoices, track expenses, and generate reports and financial projections for you.
You will need to submit a business plan, personal financial statements and possibly projected future financial statements as part of or separate from your business loan application package. Having these ready will help you avoid any delays in the process. You may also want to have someone else review your document before submitting it to ensure there are no errors. A professional from your local Small Business Development Center (SBDC) could be a good resource for this.
Be Flexible
Depending on the lender, you may need to provide different documentation. In general, you will need a business plan and financial projections. A bank will also want to review bank statements, income and balance sheets. Additionally, personal financial information for owners, partners and C-suite members is often required.
Once you have gathered all of the requested information, it is important to think like a lender when reviewing the application. Putting yourself in their shoes will help you ensure that your loan application is accurate, complete and marketable. If you find your application is not meeting lender expectations, work to make your business more marketable before reapplying.