Getting the Most Out of Small Business Financing
Every lender will have their own loan package for you to complete. There are some things you can expect to have to answer. Here are some typical items that will be necessary for you to pull together for the basic documentation.
Information About You and Your Team
#1: Personal Information. You will be asked to provide personal information such as education, experience, other names used, addresses, other businesses owned, and any criminal record. You can expect that a bank will find out any past issues that were less than ideal. It’s better to come clean with an explanation, than deny some bumps in your past. And at the same time, don’t dwell on past slip-ups. Acknowledge them and move on.
#2: Management CVs (curriculum vitae) or Resumes. Your lender is going to want to know who is running the show. Provide CVs (or resumes) for all of your key players. Emphasize experience with successful businesses, and in the case of legal and accounting personnel, also list education.
#3: Personal Credit Report for Owners. The bank is going to run credit reports for all business owners. Get your own copies from all three consumer rating agencies before you apply. If there is damaging or incorrect information, you want to know what it is before the bank does. If there is incorrect information, take steps right away to get your record corrected. Show the lender proof of your attempt to correct it. Even better, get the record cleaned up before you submit your loan package.
Information About Your Business
#4: Business Plan. Lenders are going to want to know what you’re doing with the money. That means, they need to see a solid business plan. The business plan should include a complete set of projected financial statements, along with the assumptions used to develop.
We recommend that our clients do three sets of projections: best, worst, and most likely. Some lenders, especially private ones, are more interested in the Executive Summary, a one- or two-page summary of your business, its unique advantages, challenges, where you’ve been, and where you’re going.
#5: Business Credit Report. If you’re already in business, you will be asked to submit a business credit report. Make sure you review the report before you submit it to make sure it’s accurate. This is especially important if your personal credit report is less than ideal.
#6: Income Tax Returns. You will need to submit personal and business income tax returns, generally for the past three years. You will likely have to also sign an authorization form, so that the lender can verify that what you said was filed with the IRS is actually what was filed.
#7: Financial Statements. Generally all owners of the business have to provide personal financial statements. These usually need to have a CPA’s sign-off in the form of an opinion letter. So you might as well start pulling that information together as well. The business will also need to provide current financial statements including Balance Sheet, Profit and Loss, and sometimes a Statement of Cash Flow.
#8: Bank Statement. You will need to provide personal and business bank statements for at least the past three months. Some lenders will require a full year’s worth of statements. Again, start pulling the information together, because you will need to provide it at some point.
#9: Proof of Collateral. The bank will want to see some kind of collateral for the loan. The bigger the loan or the higher the risk, the more collateral will be required. Prepare a statement that shows a listing of all assets, along with descriptions, and current fair market value.
#10: Legal Paperwork. And, of course, you’re going to have to provide legal paperwork. Be ready with:
- Articles of incorporation or organization
- Proof of current status with state
- Business license
- Business leases
- Franchise agreements
- Copies of contracts
Getting a loan can get tedious, especially when you’re pulling together all of your paperwork. Get a jumpstart by compiling the information you know you’ll be asked before you even apply for the loan.
Photo Credit: Jamie Welsh, Flickr