Business loan success hinges on several key factors

Business loan success depends on several factors, including how you present yourself

By: Phoenix Lee/

If you want to succeed in getting a loan, you have to be prepared and organized. For business loan success, you must know exactly how much money you’ll need, why you need it and how you’ll pay it back. You’ve also got to be able to convince your lender that you’re a good credit risk.

Getting your loan request approved depends on how well you present yourself, your business and your financial needs. Lenders want to make loans, but they’re only going to make loans they know will be repaid.

Well-written proposal is key to business loan success

The best way to maximize your chances of getting a loan is to prepare a written proposal. A well-written loan proposal should include a number of things:

General Information

1. Business name, names of principals, personal identification number for each principal and the business address.
2. Purpose of the loan: exactly what the loan will be used for and why it is needed.
3. Amount required: the exact amount you need to achieve your purpose.
4. Business description: history and nature of the business, its age, number of employees and current business assets.
5. Ownership structure: details on your company’s legal structure.
6. Management profile: a short statement on each principal in your business, including background, education, experience, skills, and accomplishments.

Market Information

1. Clearly define your company’s products as well as your markets.
2. Identify your competition and explain how your business competes in the marketplace.
3. Profile your customers and explain how your business can satisfy their needs.

Financial Information

1. Balance sheets and income statements for the past three years. If you are starting out, provide a projected balance sheet and income statement.
2. Personal financial statements on yourself and other principal owners of the business.
3. Collateral that you’re willing to pledge as security for the loan.

Review of Your Loan Request

The lender is primarily concerned about repayment. To help determine your ability to repay a loan, many loan officers will order a copy of your business credit report from a credit-reporting agency such as Dun & Bradstreet. Therefore, you should work with these agencies to help them present an accurate picture of your business.

Using the credit report and the information you’ve provided, the lending officer will consider five key issues:

1. Have you invested savings or personal equity in your business totaling at least 25 percent to 50 percent of the loan you are requesting? A lender or investor will not finance 100 percent of your business.
2. Do you have a sound record of creditworthiness as indicated by your credit report, work history, and letters of recommendation? This is very important.
3. Do you have sufficient experience and training to operate a successful business?
4. Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business?
5. Does the business have sufficient cash flow to make the monthly payments?

Business loans are especially helpful when you are expanding your business as it can help maximize your cash flow, provide more flexible structures and greater access to capital.

Such loans are specially beneficial for small and medium sized businesses that may not have access to other financing at reasonable terms. Business loan success depends on owners knowing which business measures — debt-to-equity ratio, for example, or net margins — lenders focus on when evaluating loan applications in their industry. Bankers say would-be borrowers should demonstrate exactly how they plan to use the money and why the plan makes sense.

Owners have to be mindful that for business loan success, the human side of lending requires as much attention as the technical aspects.

Small-business owners should cultivate a relationship with a loan specialist — ideally, long before they need a loan — and treat that relationship as a long-term partnership. As business loan applicants should expect to be closely scrutinised before loans are dished out, they should have done their math on the viability of their business proposal. There are several free tools, such as affordability calculators, which are freely available online for business owners’ use.

One major mistake business owners make is assuming that the loan process would be as easy as getting a mortgage. Business loan success does not happen quickly because we were so well-prepared. So, don’t approach one bank at a time, waiting weeks in between each for an answer. Unless you work very closely with a trusted loan specialist, a bank may not be willing to part with their cash despite you having the best of presentations.

Always be mindful that banks do not approve all applications from small businesses, in fact up to one in four fail (depending on the prevailing economic environment). The reasons can be many and varied, so this is why it is important to seek feedback from the bank as to why. This feedback can provide some valuable insight into the weaknesses of the business and/or your application. This is also the reason why business loan negotiations are important.

One best small business loan tips most people won’t give you is to not wait until you are desperate to ask for money. This is not a good foundation for a successful loan application. The bank wants to feel secure in its decision. It does not want to hear that your business needs the loan to survive; it wants to hear that your business needs the loan to grow.