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Establish Financial Stability Before Seeking Lending Options

Share current LOB: SmallBusiness

Once you have explored your lending options and decided to pursue financing to meet your business objectives, it is important to contact advisors to help get your house on solid ground and gain financing approval.

Small business owners often find financing approval difficult. The primary reasons include a failure to articulate a clear vision for the enterprise, as well as a lack of attention to the applications financial and personal requirements.

Many owners do not take advantage of the resources and expertise of trusted advisors — accountants, bankers and counselors from local Small Business Development Centers — to pull together the necessary pieces of a compelling strategy and a detailed financing plan. Critical pieces include:

A solid business plan. Produce a clear, written plan that states how you will use the financing to grow profits. Include evidence in your growth forecast that shows you have global loan coverage, meaning enough cash flow to easily make a monthly loan payment.

Professional and credible financial statements. Most small business owners do not have financial backgrounds, so work with your accountant or advisor to prepare clear, complete balance sheets and cash flow statements in advance. Many banks require financial statements for personal and business finances. A solid business with unprofessional or incomplete financial statements can detour loan approval.

Accurate and complete application documentation. Select a banker willing to assist you with your loan documentation and approval process. Many banks specialize in working with smaller businesses and have a fast-track process to help you compile the information you need for an efficient underwriting experience.

Commitment. Lenders want to know that you are committed to the deal and have made an equity investment as part of the process. Co-investing can make a deal more attractive and lead to more favorable terms. Think through your ability to co-invest ahead of time, so you have ideas about how you will contribute financially.

Collateral. Some specialty Small Business Administration (SBA) loans do not require collateral, but you likely will need collateral to secure financing with traditional loans. Collateral can include a highly liquid or saleable asset, such as cash, investments, a house or vehicle.

Working relationship. The more the lender understands you and your business, the better your chances of success. Build a track record with potential lenders before you need money. Show stability and a strong payment history by using credit lines or other small credit accounts before you need them.

Talk to your banker about more than just financing possibilities. Tap into their online cash-management tools and other small business solutions to demonstrate your commitment to fiscal discipline. Online banking tools also will help consolidate the data you and your accountant need to build realistic cash-flow projections and financial statements.

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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