Preparation Unlocks the Vault to a Small Business Loan

Unless you’re independently wealthy or rely on family or close friends to support you and your business growth, you’ll likely need to apply for a loan or line of credit at your local bank at some point.You’ll more easily convince your banker to lend you the money by being thoroughly prepared. Several preliminary steps will help your application be successful:

• Determine the kind of loan you need. Is it a one-time loan to finance a specific project, such as purchasing more equipment or making renovations? Do you need a line of credit to provide flexibility for short-term cash flow planning? Or do you need a commercial mortgage to expand your facilities?
• Bankers are more inclined to loan to entrepreneurs who write well-though-out and documented business plans, especially if your business is not well-established. Creating a good business plan requires you to evaluate carefully all aspects of your business—and may even cause you to rethink some of your ideas. To ensure your plan is complete, consider using a template, such as the one offered by the Small Business Administration, and adapting it to your particular business.
• A potential lender will want to review your personal and business finances. Plan to provide a balance sheet and profit and loss statement, as well as projections of future income and expenses. Your accountant can assist you with this task.
• You’ll need to provide evidence of collateral, just in case your results don’t work out the way you anticipate. Collateral might include:
  • Real estate
  • Cash in the bank
  • Accounts receivable
  • Business equipment
  • Inventory
• Consider how well you meet the six “C’s” of credit:
  • Do you pay your bills on time and meet your financial obligations? The bank will evaluate your credit score.
  • What’s your ability to repay the loan you’re requesting? Do you keep enough funds left over after your fixed expenses to meet this additional obligation?
  • Expect a potential lender to assess your capital – what you have left after subtracting your debts from your assets.
  • Lenders look for stability, not only in the repayment of your debts but also if you move frequently or change jobs often (if you’re employed as well as running your business).
  • Collateral, as mentioned above.
  • Cash flow. Do you earn enough cash each month to pay your bills?

Detailed preparation will save you headaches, prevent surprises, and put you in a better position to receive a positive response from your lender.Hiring a good accountant is usually part of that preparation. Our business consulting team at Patrick & Robinson CPAs holds decades of experience serving the small business community.  Let us know if we can help:  Office@CPAsite.com or 904-396-5400.