Created for the Bank of America Online Community by Dun & Bradstreet Credibility Corp.
According to the Small Business Administration (SBA), 90% of the $1 trillion borrowed by small businesses each year comes from banks and finance institutions. Despite the large number of businesses who depend on this funding source, the lending process – from application through approval – is often confusing and challenging for business owners. This article is the first article in a four-part series we hope will help shed some light on small business lending.
The Application Process
Applying for small business loans can be frustrating and often takes longer than business owners expect. The good news is that most of the problems small business owners experience when applying for loans occur because the business owner does not know what information and preparation the bank expects from them. Understanding what to bring to a lender meeting can be the first step towards successfully and quickly applying for a loan.
While the details of a loan application process will vary among different banks, there is certain information most banks will want to know. Much of the information they need should be easy to gather such as the age of your business, size of your business (number of employees), annual revenue, how long you’ve owned it, the type of business and industry, years as a customer of the bank, and what percentage of the company you own. Some of the more detailed information required may include:
- Financial and tax statements for the past three years, including income and balance sheets, cash flow, and bank statements. If you have not been in business for that long, you should include a detailed business planSBA websitethe Bank of America Small Business Online Community), though it may still be more difficult for you to successfully find a lender without help from the SBA.
- Liquidity: How much cash your company can access quickly and easily. Strong liquidity indicates that your business is likely to continue to be able to meet its ongoing financial obligations. Liquidity measures include the current ratioquick ratio
- Personal financial information such as credit rating, tax returns, and bank statements.
The following may also be asked in the application:
- Why are you applying for this loan? While the answer may seem obvious to you, make sure to be specific when explaining this on your application.
- How will the loan proceeds be used? Be as detailed as possible. For example, include the costs of any equipment you plan to buy or lease.
- How do you expect the loan to affect the growth and stability of your business? Again, the more detailed your financial projections are, the more effective they may be at demonstrating that your company is a good investment.
- How much other debt do you have? Other outstanding debt repayments can affect your cash flow and ability to repay new debts.
- Who are the members of your management team?
Preparing all this information is an important first step before applying for a loan or meeting with a lender. Not only does it make it easier and faster for the lender to process and (hopefully) approve your loan, coming in with all the documentation completed can help you make a good first impression. We will provide more loan application strategies in our next post, so stay tuned.
For more information on business credit and credibility, please visit DandB.com or call 1-800-280-0306.
* The information and advice provided by Dun & Bradstreet Credibility Corp. is provided "as-is." Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information, including but not limited to implied warranty of merchantability and fitness for a particular purpose. Neither Dun & Bradstreet Credibility Corp. or any of its parents, subsidiaries, affiliates or their respective partners, officers, directors, employees or agents shall be held liable for any damages, whether direct, indirect, incidental, special or consequential, including but not limited to lost revenues or lost profits, arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp.