No matter what business you are in, there are times when borrowing money is necessary for continuing the growth and success of your business. Assembling the information your lender will need, before you sit down to discuss the loan, can help simplify the application process for you.
Here is the information most lenders will be looking for as part of your loan application:
You should provide the lender with a business plan, including a description of your product or service; names of key management and their background; a market/competition overview; and an outlook for the industry/market.
Financial statements provide the lender with a perspective on the company's past, present and future potential for success. The statements should include a balance sheet, an income statement and any footnotes which may be necessary to provide the reader with a clear understanding of the company's financial condition. Your company should provide three to five previous year-end financial statements along with the most recent interim statement. Financial statements should be prepared by someone knowledgeable about Generally Accepted Accounting Principles (GAAP), such as a certified public accountant or business consultant. Regardless of how the statements are prepared, you, as the borrower, must understand the financial statements yourself and use the information actively as a tool for managing your business.
Personal Financial Statement
Because the finances of the small business owner and his or her company are closely related, it is often important for the lender to understand the financial condition of the business owner. This can be accomplished by providing a personal financial statement consisting of a balance sheet of assets, liabilities, and a breakdown of total personal income. You also may be asked to provide personal income tax returns.
What is the loan for?
It is very useful to have a written explanation of the purpose of the loan, the total cost of the project and any collateral, including appraisals, which could be used to support the loan.
Here are some examples of information you may need for different loans:
For a working capital line of credit to support sales growth as a result of expansion, you should provide a copy of your most recent accounts receivable list, including customer names, dollars owed and dates due and payment terms.
For a loan to purchase machinery or equipment, you should provide a contract outlining the purchase and delivery price.
For real estate construction financing, you should provide complete information on land cost, cost of construction (a firm written cost breakdown from a contractor is advised), land improvements, taxes and utility costs.
Of course, every business is different and the needs of different lenders may vary. However, taking the time to gather this crucial information before you actually apply for a business loan will make the loan application process go more smoothly.
Once you've gathered all the necessary information, the next step is to find the right financial institution and establish a business relationship. The banker you select should have the expertise required to serve as your financial consultant knowledge of your industry and an interest in learning more about your company. Your banker can and should be your partner and work with you to help your business succeed.
Joe Davio is regional president of Comerica Bank in Grand Rapids. For more information, call (616) 456-9622.