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Before issuing business loans, banks insist that many requirements be met. As a business owner, or potential business owner, knowing a bank’s requirements will increase your chances of receiving a loan and will get you your money as fast as possible.
Proper Presentation
When you, the borrower, approach a lender to apply for a loan you will need to present the lender with a detailed package describing you, your credit history, and your business. This presentation should be neat, organized, and completely comprehensive. The purpose of the package is to convince the lender that you are low risk, reliable, and in need of money.
It needs to include a business profile, which is where you explain your business to the lender. Here you should state relevant details such as the type of business you are running, the money that your business earns, the money that your business spends, a breakdown of employees, the number of years that you have been in business, and any other information that pertains to your business’s finances.
In this initial package, you need to convince the lender that you need and deserve the loan. Tell the lender exactly what you plan to do with the money and leave no cent unaccounted for. Request a specific amount of money and declare a specific amount of time that you will pay the loan back in. If you are requesting a secured loan, explain the asset or assets that you will be putting up as collateral.
Financials
Banks need to know both about the business that the loan is funding and about you, the person that is handling the loan.
Usually, banks require around three years of past financial information for the business. This includes any documentation which shows cash flow, cash flow projections, taxes paid, and balance sheets. Also, the business must be partially funded by money put up by you or your co-owners. A bank will not lend money to a business that is functioning solely on borrowed money. The business must also have more semi-liquid assets than temporary liabilities. This is necessary to demonstrate that if cash flow stalls, liabilities can still be taken care of and the loan can still be repaid.
Anyone involved in ownership of the business will need to present the business with personal financial information including debt-to-income ratio and credit history. The financial character of you and your co-owners will be assessed and must be reliable. The financial statements that you and your co-owners present to a lender will determine whether or not you get a loan.
Business Loans: Bank Requirements You Should Know
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