Steps to Financing

When applying for a business loan to start up a new business or to purchase an existing one, a lender will expect that you as the loan applicant have done your homework. You will likely have only one chance to convince a lender that you are worthy of their confidence in you as a potential business owner and loan recipient. A well-written Business Plan and request for funding (loan proposal), supported by month-by-month financial projections for at least the first year are the preferred presentation for lenders. And, since lenders also must evaluate the “5 C’s of credit” before making a decision about a loan, your best defense against a turndown is a good offense that includes addressing the following issues in your Business Plan and loan proposal.

The “5 C’s” that lenders consider are:

• Cash Flow

  ​(Capacity to repay the loan) – How do you propose to pay the loan back? What are your exit strategies, short & long term? What back up plan do you have “just in case”?

• Character

  (Management ability, commitment to business success, sense of obligation to repay, personal credit history) – Why are you and your business a good credit risk?

• Collateral

  (Alternate repayment option) – Besides your down payment, what else are you willing to put “at risk” should the business fail and you cannot repay the loan? More is better.

• Conditions

  (General, economic, geographic, industry) – Offer insight into your knowledge of your industry. This impresses lenders. Be accurate because lenders do their own research.

• Capitalization

  (Is the business properly capitalized?) – Lenders like to see that your business and you personally will have enough cash on hand to cover 3-6 months worth of expenses after the business is purchased. Using your last dollar to qualify for a loan won’t cut it.

• Capitalization Test

  (Is the business properly capitalized?) – Lenders like to see that your business and you personally will have enough cash on hand to cover 3-6 months worth of expenses after the business is purchased. Using your last dollar to qualify for a loan won’t cut it.

Below is a checklist of basic documents that you can also expect to be required to submit for a full documentation business loan request, including a loan request for an "SBA" (U.S. Small Business Administration) loan. Each business loan request is unique. Its checklist will be also.

Business Loan Checklist

• Loan Proposal / Business Plan – (See comments above)
• Key Documents supporting your request – Copies of purchase contracts, quotes and/or invoices of new items to be purchased, any appraisals or other pertinent information (example, copy of existing or proposed lease)
• Company Information – Name, tax ID#, ownership composition and contact information for the borrowing entity (if known), a cash flow projection and/or earnings projections for the next 1-3 years, and a copy of the proposed Franchise Agreement and current Federal Disclosure Document (FDD)
• Personal Information – (for EACH proposed owner of your business) – Personal Financial Statement of assets and liabilities, including those of spouses if married. May be required to provide up to 3 years of personal federal tax returns, a resume and or a personal credit report
• Collateral Information – Description of assets to be offered as collateral plus copies of any appraisals, if available