Preparation includes understanding what lenders, like Pathway Lending, need to approve your request. Don’t be discouraged if you’re not a cookie-cutter business. Pathway Lending makes loans for a variety of purposes – starting from $5,000 – so we’ve seen all types of loan applications in our 15 years!
Here are some tips that will help you through the process:
1. Do Your Homework:
Lenders search for clues that your business will be able to repay the loan, plus interest, as agreed—your personal finance record, your credit score, your assets, your work experience, and your character are part of that equation. Most financial institutions expect the loan to be secured, either with business assets or personal collateral. Having some skin in the game, meaning you have your own equity invested in the business, strongly works in your favor.
If you’re a start-up business, finding clues about your ability to repay the loan becomes more challenging. But, you still might be a fit for a loan. Do you have:
• A Business Plan: Your written plan for your business including goals and action steps, timetable, resource allocation, funding required, and related financial data. You may be asked for cash flow projections for at least a year.
• A Good Credit Score: Credit scores are an important factor when deciding whether to offer a small business loan to an applicant, according to the U.S. SBA. Credit scores reflect how well you handle money; banks may interpret a low credit score as an applicant not possessing the proper skills to manage finances.
• Industry Experience: You may still be a fit with the right experience. Have you ever owned a small business? Have you worked in this industry? Do you have contracts that need to be financed?
2. The Questions You’ll Be Asked:
Most lenders ask a similar range of questions when they are looking at your loan application. These questions help to give them a good understanding of your business’ health.
• Purpose: What will the funds be used for?
• Amount: How much do you want to borrow? Why that particular amount?
• Repayment Plan: What is your specific plan for repayment?
• Collateral: What assets, business or personal, do you intend to use as collateral? What is their market value? What portion of their value can you use as collateral?
• Asset and Liability Statement: Your current, complete business asset and liability financial statements (your balance sheet).
• Current Income and Financial Performance Statement: Your current, complete business statement of income and expenses (your profit and loss statement, or P&L).
• Historic Financial Performance Information: Past business financial performance information under your ownership or under the previous owner’s ownership.
• Standing with the State: Is your business registered with the State? Are you in good-standing?
Don’t be afraid to ask questions during this process – we’re here to help. If much of this is news to you, you may want to consider attending one of the classes offered at PathwayWBC, located in the same office as Pathway Lending. We offer advisory and education services to small business owners in every stage of their business..
3. If You’re Turned Down:
What do you do if you get a no? First, don’t give up. Pursue the reasons for the rejection. Was it a procedural thing—a missing piece of information on the application—or something else? Then ask what would it take to get a yes. At Pathway Lending, we’re always willing to help connect you with the resources you need to move your business forward.