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Review your documentation

The best prepared loan application is one that does not leave any room for ambiguity. Your lender is looking for specific information. Along with the documentation needed for your loan application, you can review the following:

• Credit reports — take the time to review your business credit report (using Dunn & Bradstreet) and your personal credit report. Reviewing these ahead of time will ensure the lender has an accurate view of how you handle both business and personal debt. Remember, lenders are more likely to loan money to someone they feel is creditworthy.

• Company equity — as a business owner, you should invest in your own business. Lenders are less likely to approve loans when the owner has little or no equity in their own company. 

• Cash flow — review your current cash flow and take into consideration future cash flow. Your lender will be looking at these numbers to make sure you can comfortably meet your repayment obligations.

 These are some of the preliminary steps you will have to take to help increase the odds of your loan being approved. However, there are additional steps which you can take to make sure you are prepared to apply for and accept financing.

Educating yourself about business loans

Not all loans are created equal. When you initially apply for a small business loan, make sure you have an understanding of the types of loans which are available and what the purpose of those loans are. Having this knowledge upfront will arm you with the knowledge of current interest rates and terms, making it easier to show you can repay the loan you are seeking.

Once you have a better understanding of the type of loan you will be looking for, you can then go about gathering the documents necessary to apply for the loan. When meeting with a Business Advisor, this will be very helpful.

The most common types of small business loans are:

• Term loans — a lump sum loan which is paid off in monthly payments until the full obligation plus interest is satisfied.
• Short-term loans — similar to a term loan except usually for less funding. These loans generally carry higher interest rates.
• Lines of credit — these loans work similar to a credit card. You draw down the funds you need at any given time and as you repay the funds, you can draw them again. These loans are often used to help business owners who have short-term cash needs due to slowdowns in business.

Remember, these are not the only loans Baker Boyer offers, but they are primarily the types of loans that most small businesses elect to use for their needs.

Deciding on collateral for your loan

Your lender may wish to have you demonstrate that you have collateral in the event you are unable to maintain your payments on a small business loan. To avoid last-minute issues, you should decide ahead of time what assets you are comfortable having the bank place a lien on before you submit your loan application. In the event collateral is not requested, you may have the ability to use the collateral as a bargaining tool.

Use of funds: Obtaining your quotes

Most borrowers have a firm understanding of how they intend to use the funds from a loan. Therefore, one of the wisest choices you can make is to have quotes, in writing, which show how you intend to expend the funds should your loan be approved. Taking this step not only shows that you have done your homework, but it also demonstrates to a lender that your loan request is in line with your funding needs.

Planning ahead is good business

Generally, it is not a good idea to wait until you are facing a cash crunch to apply for a loan. Planning ahead is always a good business decision because shortfalls of cash at a critical time can have a serious impact on your business.

When you are ready contact Baker Boyer

When you need a business loan, working locally makes a difference. Baker Boyer makes all their own credit decisions, working with staff and determining what is in the best interests of the community. Let us review and understand your needs and hear about your plans for the future. When we have a better understanding of your goals, we can work together to find the right loan to help you achieve them. Contact us today at 509-525-2000.