How to Improve Your Chances of Getting a Business Loan

Regardless of whether inter­est rates are high or low, the ability to borrow is an important factor in running a successful busi­ness. Whether you need to borrow money now or in the future, it’s good business practice to know what information a banker or other lender will need in order to grant your loan request.

This information falls into two broad categories. The first is general information about you, your business product or service, and your plans for the business. While some banks will gather this information from a loan application, it’s wise to prepare a clear, written presentation of the general facts about you and your business.

General information

You’ll probably be asked to supply some of this information on the loan application form, but you can often provide additional facts that will have a favorable impact on a lender. That’s why it’s good strat-

egy to prepare a written presenta­tion that gives a lender a clear de­scription of you and the business you are in.

Here’s a checklist for the general information you should include in your written presentation:

  • Your management background, abilities, and accomplishments as well as those of your key man­agement personnel.
  • A general description of the na­ture of the industry or business you are in.
  • The sales potential of your prod­uct or service. This should include your short-term and long-term marketing plans and how you intend to handle any problems or opportunities which your busi­ness faces.
  • An explanation of exactly how the money you are borrowing will be spent, whether the amount is sufficient for your im­mediate or long-term purposes, and how the borrowed funds will contribute to your firm’s well being.

In short, your general informa­tion presentation should tell the lender who you are, what your business has done and what you expect to do, how you intend to reach your goals, and, of course, how the money you are borrowing will help you achieve those goals. If you make a logical presentation of this general information, you’ll set the table for a clear understanding of your financial information.

Financial information

It’s critical that you present all fi­nancial information in a formal, professional manner. A sloppy financial presentation is almost certain to result in the rejection of your loan request. The follow­ing financial documents should be prepared by your accountant:

  • A personal financial statement for you and other principals of the business or other guar­antors of the loan. Be sure that your personal financial statement includes the amount of money that you yourself have at risk in the business.
  • A balance sheet which shows your company’s assets and liabilities for your most recent accounting pe­riod. It’s important that the bal­ance sheet includes the amount of the company’s present indebt­edness and the terms of repay­ment of any outstanding loans. Copies of recent company tax re­turns should be attached to the balance sheet as supporting material.
  • An income statement which shows the company’s profit performance over a specific period of time.
  • A cash flow projection which in­cludes the prospective loan funds and other sources of money and shows how the money will be used.
  • A sales forecast which projects and preferably allocates sales by type of customer over a given period of time.
  • A current ratio position which shows the relationship between the company’s current assets and current liabilities.

 

The role of your accountant

It’s important to involve your accountant in both the preparation of all financial documents and in your meetings with the lender. Your accountant can supply whatever degree of assurance about the financial information that your lender may require. The degree of assurance will vary, depending on matters such as the lender’s previous experience with you, the size of the loan you’ve applied for, and how well the bank knows your business.

For example, audited financial state­ments may be required if you are requesting a large loan and the lender has not had any previous experience with your company. In other situations, a review of the financial information by your accountant may be sufficient, par­ticularly if the lender has had previ­ous dealings with your company.

It’s generally recognized that banks credit standards vary among banks, some banks have tighter credit standards than others. But if you’re properly prepared and make a solid presentation, your chances of getting that vital business loan will be greatly improved.