Preparing to Apply for a Loan
The commercial loan process can be daunting for both the new and seasoned business owner. Following are a few things to keep in mind as you prepare for the loan process.
Get to Know Your Banker and Build a Relationship Before You Need a Loan
The commercial loan process, although similar, is different and can be lengthier than the consumer or residential mortgage loan process. A good lender will walk you through the process step by step whether it is your first time or your tenth time. By building a relationship with a lender that you know and trust before the lending process begins, you set yourself up for success when the loan process begins.
Submit Complete and Accurate Financial Information with Your Loan Application
At application your historical and current business and personal financial statements and tax returns will be reviewed. Generally, you will be asked to provide three years of business and personal returns. It is important to submit all supporting statements and schedules; they provide the loan Underwriter with additional information that explains the numbers represented on your tax returns.
Your interim financial statement includes a balance sheet and an income statement. Make sure the numbers are accurate and all entries or adjustments have been made. If you have accounts receivable and payable on your balance sheet, be sure to include an aging statement of these accounts. If you have any one time or extraordinary expenses on your income statement, prepare a short document that details the amount and why it is not a reoccurring expense.
For your personal financial statement, your lender usually has a form you can complete and customarily it is in a similar format to the business balance sheet (assets and liabilities).
Be Familiar with the Financial Operations of Your Business and Industry Specific Trends
As your application is reviewed questions regarding trends in your industry and variations on your financials may arise (i.e. change in revenues, change in cost of goods, etc.). It is important for you to be familiar with your numbers or be able to put your lender in contact with your team that can answer these questions (such as your CFO, bookkeeper, or accountant).
When Applicable Prepare Detailed Projections and Assumptions – Get Help if You Need it
If your business is going to expand or you are a startup, your lender will most likely request projections and assumptions from you. If you are not sure where to start in preparing your projections and assumptions, you can turn to the Women’s Business Center and one of their experienced Business Consultants can guide you through the process.
Projections follow the same format as an income statement and are usually broken out monthly for the first year and annual for the second and subsequent years. Two to three years of projections are usually required for expansions and startup companies.
Assumptions are a condensed version of your business plan that includes two parts: first an explanation and supporting facts to how you arrived at the numbers, and supporting information on how you will achieve them.
Know What You Will Use the Loan for and Why
Last but not least, you are getting a loan for a reason. What is that reason? How will you spend the money? How did you decide the amount you applied for is the amount you need? Knowing how much you need and why is one of the most important things to prepare before applying for a loan. Your lender will want to know what you will use the loan proceeds for and how they will help your business be successful and grow.
Underwriter and Community Advantage Loan Officer
Mountain West Small Business Finance