How to Prepare for a Business Loan Application
Starting a business and need a loan? Or maybe you already have a booming business but need more money to grow? The truth is, in these shaky economic times banks are a little hesitant to hand out business loans. Most will put your loan application package through a rigorous review, and some won’t even look if it’s not prepared in the right format. So to set yourself up for success in getting approved for that loan, you need to put some thought and effort into your application. Let’s take a look at some quick tips we share with our clients from over a decade of experience in Maryland bank relations.
Get Your Personal Finances in Order
As a business owner or a CFO, you will be under scrutiny just as much a your business. In fact, it’s a common requirement to provide records for at least 3 years of personal tax returns with your loan application. You want to show that your income is increasing (or is at least stable) and you are responsible with your taxes. In addition to that, be sure to check your credit score and your debt-to-income ratio (shoot for less than 33%). If paying off a few debts will get you in the 700-800 credit score range, it’s worth the time and effort.
Romance the Lander
While it’s not unusual these days to apply for loans online and get your money without ever meeting a human, it’s best to build a relationship with your lender first. Think about it this way: if a random person you met once came to you asking for money, you would probably be suspicious and hesitant. If you are applying for a loan from your current bank, see if you can rub shoulders with loan officers (or even the president) before you even need money. You could try sponsoring one of the bank’s events, partnering up for a fundraiser or sending them a few leads. If you are considering a new lander, start by opening up an account with them and getting to know each other.
Anticipate Questions and Concerns
Put yourself in the shoes of your lender. What kind of information will put them at ease about lending you money? If it’s not already required with the loan application package, include a report on industry risks. It can be prepared by an independent third party and is usually based on SIC codes. Be prepared to show how your business is equipped to address these risks and persevere.
In addition to that, it is also helpful to have a report on cash flow. After all, the cash flow will end up paying off those business loans, so you want to show that it’s healthy. If in the past your business has managed to handle well in a slow market, this is also something to brag about.
Most lenders make it “easy” for you to apply for a business loan by providing a list of documents they need from you. Some of these documents are bank-issued forms, while others are left up to you to put together and format. What information you include and how you arrange it is important, because you want to make sure loan officers come to the right conclusions when they look at your data. The same set of numbers can become an argument for or against you, depending on the context.
Take great care in assembling these and other required documents:
- Business and personal financial statements
- Profit and loss statement
- Financial projections
- Business plan and principal resumes
- Business overview and history
You probably have a CPA who does your taxes. Well, loan applications can be just as complicated and important, so getting assistance is advisable. If your current Maryland accountant doesn’t offer such services, be sure to find a CPA who has experience with bank relations. Our team at The CFO Source has worked in this field for years and will be happy to lend you a hand.
Just give us a call or contact online for a consultation!