Business Lending Coach

Credit

• Check your personal credit history and score. There are three credit reporting agencies: experian, TransUnion and equifax. It is recommended you check all three.
• A copy of your credit report is available from all three credit reporting agencies at no charge, once per year, per individual at www.annualcreditreport.com.
• To check your FICO/credit scores (fee required) visit www.myfico.com.
• If you find there are errors or discrepancies on your credit report(s), contact the credit reporting agency/agencies directly about resolving the issue(s).
• It is strongly recommended that you stay current on all personal accounts (i.e., no late payments, collections, tax liens) prior to approaching a lender.

Business Planning

• Plan your startup company by writing a business plan, or at minimum, a strong executive summary.
• Existing businesses can write a strategic plan, revise their existing business plan or, executive summary.
• We recommend visiting SCORE.org to obtain business planning & financial templates (or click here).

Industry Experience

• Direct or related experience in the industry of the business you plan to launch is highly recommended. This criterion holds most true for start-up businesses. Most alternative lenders will require industry experience before applying for a loan if the business is a start-up.
• Entrepreneurs without same-industry experience may be able to meet this requirement by participating in:
  1. Related training, education, certifications, licenses.
  2. Apprenticeships, or part/full-time positions.
  3. Completing a recognized entrepreneurship training program.

Equity Injection

• To share some of the risk, lenders may require that the entrepreneur invest a percentage of their personal money into the business.
• Lenders will typically request that the entrepreneur contribute at least 20% to 30% of the loan amount if launching a start-up business (10% to 15% for existing businesses).
• The amount the business owner(s) must contribute in equity injection may also be dependent on the riskiness of the loan (higher risk = higher equity injection from the borrower).

Alternative Sources Of Income

• An alternative source of income is typically required for start-up businesses due to the financial risks of a new or young company.
• Alternative sources of income include: a part/full-time job outside of the business, a working spouse/partner, income from rental properties, and cash/investment accounts.

Financial Documents

• Personal and business financial documents will be requested.
• A borrower’s personal financial situation is equally – if not moreso – as important as business financials to majority of commercial lenders.
• Financial documents that will be reviewed may include personal & business: tax returns, bank statements, income statements, balance sheets, financial projections, and monthly personal expenses.
• To determine personal monthly expenses.

Collateral

• Nearly all conventional lenders (e.g., banks) will require collateral when requesting a term loan. Collateral is an asset that can be repossessed by the lender in case the borrower is unable to repay.
• For alternative lenders, collateral requirements vary from zero to 100% or more of the loan amount.
• Determine sources of collateral by listing personal and business assets that can be used to secure the loan. Collateral may include:
  1. Business assets.
  2. Property or real estate.
  3. Cash including stocks, mutual funds, CD, and money market accounts.
  4. Alternative lenders may be able to accept more flexible forms of collateral including appraised items of value (e.g., jewelry), business assets, receivables, vehicles (if a clean title is owned).

Purchasing An Existing Business

• The Buyer must obtain financials from the Seller (business to be purchased):
  1. Business tax returns (prior 3 years if applicable).
  2. Profit & loss statement (also known as an income statement) and balance sheet for the most current year of business operations.
  3. Current Aging Reports of the Seller’s Accounts Receivables and Payables accounts (as applicable).
• Provide the lender a (draft) Purchase Agreement (also known as a Buy/Sell Agreement).

Co-Signers & Loan Guarantors

• If a co-signer or a guarantor is involved to help secure the loan, their financial strength will be an important factor. Typically, the lender will request the following from them:
  1. Personal tax returns.
  2. Personal bank statements.
  3. Investment account statements (if applicable).
  4. Business financials if the co-signer or guarantor owns a different business outside of that related to the loan request.
  5. The lender’s personal financial statement form.
• A co-signer’s or guarantor’s credit report will be checked by the lender.

Multiple Business Owners

• Principals with more than 20% ownership in a business will be required to submit the following financial documents:
  1. Personal tax returns.
  2. Personal bank statements.
  3. Investment account statements (if applicable).
  4. Business financials if the co-signer or guarantor owns a different business outside of that related to the loan request.
  5. The lender’s personal financial statement form.
• Credit reports will be checked by the lender.

Other Information

Industries requiring certain licenses, certifications, specific reports or special permits specific to the business and industry should be prepared to provide related documents the lender will request. Brief examples of business types that require special permitting include: child care businesses, gas stations, recycling facilities, healthcare professionals, and food-related.