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What’s your Small Business Loan IQ? |
by Sierra A. Martin What does it take to secure a small business loan? Here’s your chance to improve your overall chances of success in obtaining the financing for your new business venture. While the application process itself may feel a little like being left for dead on a deserted island, with nothing but a sea of paperwork. Relax your life boat is on the way.
Having said that, lets start with the basic documents that will be required of all small business loan applicants.
Business Profile This document should describe in detail the business, annual sales, length if time in business, number of employees and the ownership.
Loan Request This is the total amount being requested, the break down of how the funds are to be utilized, and the working capital that you currently have on hand.
Collateral A complete list describing what will be used to secure the small business loan, including equity in business, borrowed funds, and available cash.
Personal and Business Financial Statements The most common of thumb here is any individual or group owning 20 percent or greater including all owners, partners, officers, and stockholders will be asked to provide financial statements. In addition to this the lender will also request a complete schedule of current debts and balances, payment schedules, maturity, and a detailed accounting of any collateralized items used to secure your small business loan.
Balance Sheet You will need copies for the past 3 years.
Profit and Loss Statements These are needed for the previous 3 years.
Cash Flow This is a projection that indicates how much cash you expect to generate.
Accounts Receivable and Payables Aging The accounting of this should indicate your payables and receivables in to 30, 60, 90, and past 90 day categories.
Personal Financial Statements This will show a complete documenting of all personal assets, liabilities, monthly payments, and personal tax returns for the past 3 years.
After this initial documentation has been submitted for the small business loan, you may be asked to provide a few additional pieces of information in order to complete the process. These include Articles of Incorporation, leases, legal description of the property, proof of taxpayer ID, equipment inventory including serial numbers, and proof of insurance on collateralized items.
While there are numerous types of small business loans, some of the more popular are grants, women and minority small business loans and commercial small business loans.
Once the small business loan package has been successfully assembled, it is then submitted to the Small Business Loan Administration for consideration. This process is relatively short considering the efforts it took to compile the information. This process takes approximately 3 days. Upon approval of the application, a letter of “pre-qualification stating the intent to guarantee the small business loan and the terms of loan, will be provided to the applicant. If the application is declined a small business loan for any reason you will receive a reason and suggestions to correct the problem within the application.
There are a few more common factors for non-approval of a small business loan application. They involve credit history, vested interest, working capital, and the ability to repay.
When considering applying for a small business loan your first step should be to pull a credit report for all three major reporting agencies -- Equifax, Esperian, and Trans Union. Carefully review the details and clear up any discrepancies before you apply for the small business loan.
Lenders want to see you have a personal vested interest in the business before they give out a small business loan. They need to know you will do what is necessary to make the business a success.
The working capital is your current assets minus your current liabilities. Working capital is thought of as cash on hand to meet the daily needs to keep your business operational.
Finally, you will need to show proof of your ability to repay the small business loan to the bank. Banks want to see two separate sources for repayment the best being cash flow from the business and the second collateral.
Now that your ready to take the plunge make sure you remember to enjoy the process. After all, isn’t this the American dream – to own your own business?
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