Ravi Chandran
Many business loan borrowers are often inundated with the many requirements lenders put before them.
By: Hitesh Khan/
Applying for credit can be tedious for business loan borrowers. It calls for more documentation than you might initially have expected and certainly a lot more than when you apply for consumer credit.
For lenders, extending credit to an entrepreneur usually means customising the small business start up loan to suit the credit needs of that business. So don’t be disheartened by the amount of paperwork needed to accompany the application. Instead, be prepared!
The best assets business loan borrowers can bring to the lender is a well thought-out and documented business plan.
Table of Contents
You need to clearly state the purpose of the small business start up loan (will the money be used for temporary working capital, buying equipment, or expanding facilities); the amount of funds needed and for how long; and a repayment schedule.
Your business plan should include the following information:
1. Business description that tells the nature of the business, describes the product and its market, identifies its customers and competition.
2. Personal profile that outlines the background and experience of each of the principals in a resume.
3. Proposal that states the type of loan requested and its purpose.
4. Business plan that outlines the business loan borrowers corporate strategy for the next three to five years; it will aid you and the lender in determining whether the business will generate the cash flow needed to repay the loan.
5. Repayment plan that tells how you propose to repay the small business start up loan or outlines a repayment schedule. The lender will be expecting you to repay the borrowed funds from the profits produced by the business. As a contingency, you might need to develop a plan on how you would repay the small business start up loan if the profits alone turned out to be inadequate.
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6. Supporting documentation will include copies of pertinent papers that support the information contained in your loan proposal-for example, a lease, certificate of incorporation, partnership agreement, letters of reference, contracts, invoices or vendor quotes.
7. Collateral that you will use to secure the payment of the small business start up loan. Collateral can include business and personal assets such as inventory, equipment, and accounts receivable or real estate, stocks, bonds, and vehicles.
8. Financial statements, both personal and for the business. The business financial statement should be provided for the last three to five years of operation including a year-to-date interim report. It should contain a balance sheet showing business assets and liabilities, and a profit-and-loss statement showing revenues and expenses.
The lender uses this information to calculate a debt-to-worth ratio for the business. Be prepared to provide copies of tax returns for the business for this same period.
The personal financial statement should list your assets and your liabilities. Identify the names in which title to each asset is held and its fair market value. You should be prepared to provide copies of your personal tax returns. You may be asked for a list of credit references. Lenders will check your personal as well as your business credit rating.
Lenders will carefully examine your financial statements and business projections.
As business loan borrowers, you must be fully prepared to answer questions about them.
9. Personal guarantees of the owners or other principals usually are required, even from an established business.
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The lender also may request another party’s guarantee such as a cosigner or a surety. In addition to the personal guarantee that you give, the lender may require another person’s guarantee should your application fail to meet the lender’s standards of creditworthiness.
If all or most of the assets listed on your personal financial statement are owned jointly with your spouse, or with someone else, the lender is likely to require such a guarantee. But the lender may not require that your spouse be the guarantor.
In the case of secured credit, the lender is allowed to obtain a spouse’s or other co-owner’s signature on certain documents when the applicant offers, as security for the loan, property that the two own jointly.
In this case, the spouse or other co-owner may be asked to sign documents – such as a mortgage or other security agreement to make the property available to satisfy the debt.
Before you approach a lender for a start up loan, you might want to seek the advice of another, more experienced “set of eyes” to review your business plan, particularly if you are a first-time borrower. By doing so, you’d be getting the loan package in shape to make it easier for the lender to reach a favourable credit decision.
How to Secure Personal Loans Quickly
If you have limited capital and are searching for personal loans to expand your business, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.
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