Obtaining the Additional Capital You Need with Traditional Bank Financing

You’ve decided you need financing from an outside source to successfully grow and expand your business. You’ve also determined how much you need and how you’ll pay it back. The next step is to apply for financing. Whether you’re looking for a loan or a line of credit, navigating the process may seem complex, but there are some things you can do to make it go more smoothly.

3 Steps for Getting Your Application Ready for Review

Having a business plan, documenting your financial information, and showing a strong credit history can all help position you for success.

1. Create a business plan. A business plan can demonstrate how you’re prepared to sustain your operations profitably. It should be clear, written in non-technical language, and include the following key elements:

For Startups:

  • Evidence that customers will buy your product or service at the price you’re charging
  • The amount of equity the owners have contributed to the business
  • Your resume or an explanation of your background that explains how your experience qualifies you to start or run your business
  • The credit needed to support the long-term growth of the business
  • Where you see the company – and the balance sheet – in three years

For Established Businesses:

  • Your sales cycle and typical accounts receivable collection period
  • Your gross margin and all financial assumptions, to show how you compare to your industry and competition
  • The credit needed to support the long-term growth of the business
  • Where you see the company – and the balance sheet – in three years

2. Document your business (and, in some cases, your personal) finances. Lenders want a complete financial picture of your business, including historical information – through year-end statements and/or business tax returns – and projections. This shows them how you’re managing expenses and cash flow related to the money you currently have available, and breaks down the net worth of your business.

For Startups and Established Businesses:

  • Owners of both startup and established businesses should be prepared to provide their previous two years of personal tax returns and a Personal Financial Statement (PFS)
  • Owners of established businesses must also be prepared to provide their business tax returns for the previous two years, including the business balance sheet and income statement

3. Show strong business and personal credit histories. According to the 2016 Small Business Credit Survey1, 45% of small businesses use both personal scores and business credit scores to secure debt. Before completing a credit application, whether for a startup or an established business, you can save time and decrease your stress while showing your credit history in a more positive light if you:

  • Request a copy of your credit report. Review your credit in detail and contact the three major credit bureaus – Equifax, Experian and TransUnion – if you find mistakes. To assess your creditworthiness, lenders will review both your business and personal credit scores to see how you’ve handled credit in the past, which is a good indication of how you’ll handle it in the future
  • Improve your credit history. If your personal and/or business credit history isn’t strong, work to improve it. For example, pay down revolving credit card debt sooner than planned and make payments on time

After You Submit Your Loan Application

Reviewing and processing your application can take anywhere from a few days to a few weeks, depending upon several factors. First, your package is examined to ensure you’ve include all the information needed to make a decision. Next, the lender sends your documents to their credit group, where each aspect is analyzed thoroughly. Once they complete this exercise, they’ll decide whether the risk they’ll take by providing the capital to you is an acceptable level of risk for their organization.

Putting Your Best Foot Forward

Understanding in advance what you need to provide can help you be better prepared. The more you do before you submit your application, which includes ensuring your application is complete and error-free, the easier it will be to assess your situation and secure the future of your business with the right financing tools.

Disclosures

1 https://www.newyorkfed.org/medialibrary/media/smallbusiness/2016/SBCS-Report-EmployerFirms-2016.pdf

​This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.

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