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    0 Replies Latest reply on Feb 7, 2008 12:46 AM by bankpig

    Quick Guide to Loans

    bankpig Adventurer

      Banks and institutions that lend money have a lot of knowledge about the success rate of small businesses. Bankers are often overly cautious in making loans to small businesses. For that very reason it makes sense to understand their approach, even though it may seem discouraging at first glance. Most banks will generally not lend more than $10K to Start-ups. For businesses that have more than a 2 year history, here's a quick guide to keep in mind when soliciting a business loan/line.


      What banks look for:
      1. Business owner(s) should have FICO upward of 675.
      2. Positive net worth of business owner(s); the more assets the better. No bankruptcy.


      What's realistic:
      1. A loan valued at a maximum 15% to 20% of your gross sales.
      2. Owner(s) has a personal net worth equivilent or higher than loan request.


      How the SBA can help:
      1. SCORE can provide education that some bankers (sales staff) don't have the time or know how to do.
      2. Provide a guarantee (about 50%) should your business default. This allows the bank to take a little more risk when lending.


      If you request over $100K, you will also need:
      1. Two years of business and personal tax returns.
      2. Business Financial Statements
      3. Two months of business checking statements
      4. A signed IRS 4506T form
      5. Positive cash flow.


      How much it costs:
      Most banks have very minimal closing costs or fees (less than $300/yr). The big difference is the interest they will charge you. Bankers should be able to tell you their rates or rate range without running your credit or even taking an application.


      Why so much work? Remember that most business loans are unsecured debts unlike a mortgage where there's an asset. Funding will probably take 3-4 weeks. I know this post is discouraging for those that don't fit the bill and I'm sorry. There are non-traditional lenders out there, but their charges can be significant so watch out. Good luck!