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Is it time to put your expansion plan on the front burner? Have you outgrown your current location? Do you need to replace some equipment? There are many reasons small business owners might be in the market for a loan. If you’ll be shopping soon, here are some pointers.

Think About it When you Don’t Need It.

It is a good idea to have borrowing capacity even when you don’t need it. If a cash flow problem presents itself, that usually means that you would also not be in a good position to qualify for a loan. Get Business Lines of Credit in place when you are financially strong so it is in place when you need it. Don’t just apply for a loan and send your financial reports without doing some review of them first to make sure they are clean and ready to be reviewed. Companies that take every available dollar out of their business resulting in no Equity are always surprised when Banks do not want to lend them money. If you have no equity, you are not seen as financially strong enough for a bank to risk it….keep that in mind when you distribute all of the earnings and leave nothing behind to build equity.

Check your credit. 

When you apply for a loan, the lender will look at your personal and your business credit histories. Before you start the application process, check to make sure both are accurate and up to date. If there are errors, resolve them ahead of time.

Polish your plan. 

Prospective lenders will want to know as much as possible about your business. Prepare a comprehensive, up-to-date business plan that provides information about your company (a description and an executive summary) and yourself (educational background and relevant experience). Since your plan may be pivotal in convincing potential lenders to approve your loan, consider including an overview of your management team and key personnel along with some market analysis and a marketing plan.

You should also be prepared to provide financial statements and cash flow projections. Lenders may request personal financial statements for you and other owners as well.

Check your equity. 

Before you submit a loan application, make sure you have enough equity in the business. Although requirements can vary, lenders generally want a company’s total liabilities to be less than four times equity. A lender may require you to put some additional money into your business before approving you for a loan.

Identify collateral. 

Lenders generally require collateral, an alternate repayment source that can be used in case your business isn’t generating enough cash to make payments on your loan. Either business or personal assets can be used. If you don’t have anything you can use as collateral, perhaps you can find someone who does who will cosign the loan.

Look for a good match. 

If you already have a good working relationship with a bank that lends to small businesses, it makes sense to start there. If you don’t, or if your bank isn’t a good match, do your homework. Look for lenders that do business with companies similar in size to your own. Finding a lender that’s familiar with your industry is an added bonus.

Post Author: Tricia O'Connor CPA MBA