What do the decision-makers – the banks, the credit lenders, the Small Business Administration and other financial organizations – look for when deciding whether or not to lend you money?



Actually, it's not all that complicated. The information below will give you a heads up on what more traditional financial institutions will ask for when you apply for lines of credit or loans through the Small Business Administration. The SBA, by the way, has an excellent checklist of documents needed for its loan process. 

For both types of common loans (short- and long-term), your business (or business-to-be) requires the following documentation before your loan request can be evaluated:

• A business profile. This is a written statement.  A document describing the type of business you own, and includes details, such as annual sales, number of employees, length of time in business and specifics of ownership.

• Loan request. This is a description of how you want the loan funds to be used. This statement should include purpose, amount and type of loan.

• Collateral. This gives the lender a description of the collateral you’re offering to secure the loan, including equity in the business, borrowed funds and available cash.

• Business financial statements. These are complete financial statements for the past three years as well as well as current interim financial statements.

• Personal financial statements. These are statements of all the owners, partners, officers and stockholders who owning 20 percent or more of the business.

Be sure that your financial statements are carefully prepared and up-to-date! The strength and accuracy of your financial statements will be the primary basis for the lending decision to go in your favor, so be sure that yours are carefully prepared and up-to-date.  

The most important documents in your financial statements are:

• Balance sheets from the last three fiscal year-ends.

• Income statements revealing your business profits or losses for the last three years.

• Cash flow projections indicating how much cash you expect to generate to repay the loan.

• Accounts receivable and “payable aging,” breaking your receivables and payables in to 30-, 60-, 90- and past 90-day old categories.

• Your personal financial statements from you along with statements from your business partners listing all personal assets, liabilities and monthly payments, as well as your personal tax returns for the past three years.

What to include a loan proposal…in a nutshell:

• Business name and address

• Names of principals and their Social Security numbers

• Purpose of the loan – be as specific as possible about what it will be used for?(salaries, equipment, etc.).

• Exact mount of money you need.

Business description:

What kinds of business?

History?

How many employees and current business assets do you have?

What's your ownership and legal structure?

Management:



Offer a short description on each principal…including background and education, experience, skills and accomplishments.


Market:  Demonstrate knowledge over your product(s) and where it fits in the market(s). Competition and role in the overall marketplace.
Sketch customer profile and how you business can fulfill customer needs.



How will banks review your loan proposal (in a nutshell)?

1. First and foremost, they want to see proof they will be repaid.

2. That means they'll investigate your credit.

3. Outside sources of funding (at least 25 to 50 percent) will strengthen your case.

4. Sufficient experience to pursue business enterprise.

5. Suitable cash flow for business to run.

The key? Be prepared and have both your documents and financial story in order. If so, the road to solid financing is wide open.

How to find the right lender for you needs

It’s easy enough to say a lender is someone who lends, but it’s not always that simple. Not every lender provides the same loans. One lender might make only business loans, while another lender makes only consumer loans. It’s not much of a challenge to find a lender who makes loans only to people who have stellar credit, but finding a lender who makes loans to someone who’s “credit score challenged” can be a different matter altogether.

So, how to you find the lender who’s right for you? There are three ways to narrow the field.

• You could call around to local financial institutions, asking what type of lender they are, and what their terms and rates might be for someone with your needs and credit history.
• You could ask friends or other business owners for recommendations. Ask where they’ve gotten loans in the past, and if the lender was someone they would use again.

• You could go through a loan-consulting firm that will analyze your needs and credit history and either present your application to a lender that specializes in loans like yours, or will advise you on what type of lender to use and how to maximize your chances of getting a loan with satisfactory rates and terms.

It hasn’t always been so, but today almost anybody can find a lender will to make a loan. Even someone with a low credit score can find a lender, if the borrower is willing and able to pay more for the loan.

There is no shortage of short-term lenders, cash advance storefronts, payday loan providers and pawnshops. It’s not hard to find a lender online with minimal requirements for income and credit, and most are able wire the loan to the borrower with a bank account within 24 hours—many can do so within an hour.

The one caveat that should be heeded when accepting loans of this type is to make payments on time; failing to do so can result in high penalties and higher interest rates. Though much has been written and said about how payday lenders take advantage of borrowers with limited options, the truth is that a short-term lender is often the only lender and the only option available. In addition, for a borrower who repays the loan on time, the option can be a lifesaver.

Sometimes balancing a budget is like standing on the bank of a creek, wondering if you can make it to the other side in a single leap without landing in the water. Those are the times short-term personal loans can help bridge the gap.

Examples from my own life:

• My husband bit into a piece of pizza this week and broke off a molar. He saw the dentist yesterday and was quoted $1,179 for a crown. Right now he’s in no pain, but if that changes, we’ll probably look into short-term personal loans.
• I’ve lost my bifocals. Under ordinary circumstances I could replace them without much of a hardship, but the holidays are upon us, and our budget is stretched thin already.
• Ordinarily, we’re able to cover additional holiday expenses without going into debt, but this year we committed to buying gifts for three boys from a disadvantaged family … and then a family friend suffered a serious injury, and we offered to help buy gifts for her two girls, too.  Given the financial situations of both families, even short-term personal loans are out of reach for them, but my husband and I still have jobs, so will be able to acquire loans if we have to.
• And, in the midst of all this, our dog has gotten sick, and this week’s trip to the vet’s office cost nearly $400.

We’ve never taken out short-term personal loans in the past, but there does seem to be a “perfect storm” gathering, and if the rains come, the creek may become dangerously flooded.

While short-term personal loans sometimes come with high interest rates, because so many credit card issuers have recently jacked-up their interest rates, the short-term personal loans may actually be cheaper. Besides that, many people have elected to close their credit card accounts to avoid the higher interest rates, meaning short-term personal loans may be their own option for making it to the other side of the creek.