Sponsored by the U. S. Small Business Administration
Generally, loan officers require the most information from a first-time borrower. Banks may offer an unsecured loan, although that is less likely and shouldn't enter into your thinking unless you know your bank has done this in the past. Unsecured loans are made based upon assets, credit history and ability to repay. However, these loans do not require you to personally secure the loan with personal or business collateral. The more common secured loan requires that you guarantee your willingness and ability to repay the debt with an asset such as real estate, stocks or securities. Loan packages become more detailed as the size of the loan increases or the length of the repayment timetable is extended.
As part of a loan application you will generally be required to provide a business plan, a resume, and a credit history with references and specific loan documents required by the bank. For both new and existing businesses, banks will want to know your level of education and practical business experience; management experience is something the loan officer will look for in your work history. In addition, the bank will review your personal credit history.
The bank will need to know how much money you are putting into the business start-up. It is not likely that they would look favorably on your application if you are putting little or no money into the venture. They will want to know the source of any money you put in the business. If it all comes as loans from friends and little from you, don't expect to be successful. The primary interest of the bank when they make a loan is "will we be able to get our money back?" The more you have at stake personally, the higher will be their level of confidence that you will work very hard to make the enterprise a success.
For new business start-ups a business plan is almost always a must. While some will grouse that the bank wants to know things that, to you, are not important, be assured that their request is for your benefit as much as theirs. In preparing a business plan, you will be forced to address several things which are important to the future success of your business. Some of these questions you will recognize as germane but some you will wonder why they need to know other kinds of information. They may want to know who your lawyer and/or who your accountant is. This question will tell them how thorough you have been in your planning. By the way, a lawyer and an accountant will be of considerable help in developing your start-up plans.
Another thing you will be expected to supply is a forecast of your financial situation for the next 2 or 3 years. When you, with the help of your accountant, prepare the financial forecasts including cash flow, you will recognize it is not enough to borrow money to buy the equipment you need. You will also need financial help to get through the initial period of little business until your reputation leads to a volume that will sustain the business over the long haul.
For existing businesses, the credit history and an accounts payable balance sheet may be requested. The loan officer will most probably request a business plan. The business plan should clearly describe the business, its goals and objectives, as well as the financial details and forecasts supporting the tangible goals set for the business. A well-conceived and thorough business plan will have an impact on the bank's perception of your commitment to the business and its financial success.
For additional help see our check-list and tips for securing a bank loan.
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