How to Get a Business Loan

by VENDIREX on 10/23/2015 - 01:20 pm |

Tag: Business Loans

Whether you’re looking for a loan amount of $5,000 or $500,000, don’t think of it as a desperate move. From startups to established companies, business loans help owners to hold onto their cash flow while using ‘other people’s money.’ It’s a smart business decision that allows you to expand or - in the case of a brand new venture - to launch that innovative concept that’s going to ‘change the world.’

Don’t be Desperate

Taking a ‘shotgun’ approach (reaching out to several lenders and submitting multiple applications) won’t do you any favors. Everyone’s going to check your credit, and so they will all see you are applying to other companies. Do they think you’re price shopping? Probably not. They assume you’ve been turned down and are desperately searching for anyone who can give you the funds you need.

Qualify Them

So, do your own homework, and talk to a few different lenders before filling out any applications. Check out their terms, customer service, length of time to obtain funds; you can speak in hypotheticals without committing. Compare apples to apples, but when it comes down to signing on the dotted line, remember that all loans are going to cost you money. Certain fees are up front, some are over the term of the contract, and others may even be hidden in fine print.

A lender’s own reputation, stability and responsiveness will be key to your future relationship. Make sure you are comfortable with them, just as you would want to be with a new client you’re taking on. Does it feel right, and are they genuine and transparent in their interactions with you?  

Show Your Strength

Lenders love to loan money to those who don’t really need it. So, you want to come from a position of confidence and as much power as you can muster. Get your books in order, and expect to have the following history and documents closely researched by the bank or private lender you ultimately work with:

Management - Is your team experienced in the industry you are involved with? As an owner, if you do not personally have the expertise to fully operate the company, is your manager firmly vested in the business? Is ‘key man’ insurance in place?

Credit - If your business is less than 3 years, anticipate the lender will use your personal credit to qualify (and require you to sign for the note). If you’re an LLC, this is going to allow any collection of a default to go outside the company’s liability protection and pursue your personal assets. Just be prepared for this going in.

Collateral - Any physical assets owned by the company may be used to guarantee the funds. In certain cases, impending contracts may be collateralized. Again, if your business is new, expect the lender to lien your personal home or valuables. If the loan is for the purpose of buying a building in which the company will operate, the property will, of course, stand as the collateral.

Cash Flow - A typical requirement is that you have a cash flow 1.25 times the amount of your company’s total current and payable debt. Basically you must show that you have the ability to pay back the note; money in the bank, ongoing and future contracts in the works.

Capital & Equity - Your debt to equity ratio will be verified; the lender wants to see no more total debt than 3-4 times your equity. Equity is your cash on hand, plus the total of the company’s facilities, equipment, and any other physical assets.


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