Business Strategies

Getting a business loan is less about luck and more about preparation. Lenders want to know that you can repay, so your job is to make that case clearly, with documents to back it up. A well-prepared application saves time and can improve the terms you receive.

Understand What Lenders Look For

Lenders often evaluate several factors, sometimes remembered as the five Cs:

• Character: your credit history and track record.
• Capacity: whether your cash flow can cover the payments.
• Capital: how much of your own money is invested in the business.
• Collateral: assets that secure the loan.
• Conditions: the purpose of the loan and the economic and industry environment.

Gather Your Documents

Expect to provide most of the following:

1. Business and personal tax returns for the past several years.
2. Current financial statements: balance sheet and profit and loss statement.
3. Cash flow projections that show how you will repay.
4. A business plan, especially for new businesses or large requests.
5. A list of debts and a schedule of assets.
6. Legal documents such as formation papers, licenses, leases and contracts.
7. A statement of how you will use the money.

Accurate financial statements prepared on a consistent basis give lenders confidence. Our bookkeeping and business plan services can help with these.

Check Your Credit Ahead of Time

Lenders usually review both business and personal credit, particularly for small companies. Review your credit reports for errors and pay down balances where possible before applying. You are entitled to free credit reports, and the Consumer Financial Protection Bureau at consumerfinance.gov explains how to get them.

Shop Around

Compare banks, credit unions, SBA-participating lenders and others. Look beyond the interest rate to fees, repayment schedule, prepayment penalties, collateral requirements and any personal guarantee. A personal guarantee makes you personally responsible if the business cannot pay.

Match the Loan to the Need

Use a line of credit for fluctuating working capital, a term loan for equipment or expansion, and real estate financing for property. Borrowing short-term money to buy long-term assets can strain cash flow.

Be Honest and Open

Disclose problems early and explain how you are handling them. Lenders are more forgiving of a past setback that you can explain than of surprises discovered later. Never exaggerate figures; false statements on a loan application can have serious consequences.

After You Are Approved

Keep your lender informed, deliver required reports on time and meet any loan covenants. A good relationship makes future borrowing easier.

If you are preparing a loan request, talk with our firm about getting your financials ready.