Do you need a business loan but don't know where to start?
As a business owner, there may be a time when a loan is needed to finance your company - either for working capital or to grow your business. It can be a time-consuming experience, but with advanced preparation and an understanding of the business loan process, your success at securing a loan may just be a bit easier. This week’s tips include an overview of some information a lender may ask you.
A loan request package may vary with each lender however the package provides the lender with detailed information, a story of your business, that the lender uses to ascertain or determine if your business will be granted a loan. Your understanding of the the below terms will help you with your preparation.
Loan Purpose describes how the funds of a loan will be used. Examples include funds needed to meet the day-to-day obligations of the business or used for the growth of the business.
Loan Amount defines how much of a loan is needed. Industry sources indicate that one should only request funds for what is needed (and documented in your business plan) and not for 100% financing.
Loan Maturity & Terms notes how long you need to borrow the funds for and when you expect to repay the loan. Different types of business loans have different terms and maturity dates – know the difference between a line-of-credit versus an equipment or asset-based loan.
Repayment – a lender reviews the loan package supporting documentation (business plan, cash flow, etc.) to determine your ability to generate the needed revenue to satisfy the terms of the loan and repay it.
Collateral is security for a loan. A lender may require supporting documentation of collateral assets should you be unable to repay the loan through the generated revenue. Collateral assets may be real estate, equipment, stocks, etc.
Careful Tip – some lenders may request a Personal Guarantee
Personal Guarantee is a guarantee to the lender that you are willing to repay the loan with your personal assets if your business is unable to repay the loan.
Caution! Check Your Loan Documents For A Prepayment Penalty – A prepayment penalty is pretty much just what it sounds like - it's a prepayment clause that stipulates you will be penalized if you pay your loan off early. Why would your company be penalized for prepayment? Because early payments lessens the interest that the lender receives.
Loan Package Overview
Briefly – each loan package should include a statement of why the loan is needed or a statement of purpose; a detailed business plan or key sections that include an overview of your business with a description of your business and vision; and supporting documentation including your financial statements, cash flow statements, income statements, balance sheets etc.
Navigating through the business loan process can be an intimidating process but there is help out there including mentors, coaches and advisers. FL-Accounting & Advisers offers a complimentary consultation to discuss your particular business needs.