Prepare a Complete Loan Application

It seems simple, if you want a bank to loan you money, then you want to present complete information and a strong case for your business as a safe investment for the bank. Small business owners are indeed turned down for much needed loans. Often the bank’s decline can be traced back to an incomplete or inaccurate loan application, business plan and/or financial statements.

Loans are often turned down because the loan application or supporting documents are poorly prepared. If you find yourself in a cash crunch, you want to obtain a loan quickly and efficiently. To gain the confidence of the lender, you must demonstrate both your seriousness and preparedness. Loan officers look for red flags in packages. A well prepared package that accurately reflects the business and provides all of the information requested, helps to indicate your seriousness about receiving the loan and being both willing and able to repay the debt.

Make bank contacts long before you need them. If you’re starting a business, get to know the loan officers at your bank. They will be more comfortable making a loan to a person they know. Early meetings give you a chance to tell loan officers about your business and its aspirations. You begin laying a foundation for a business relationship. A good, long -term banking relationship brings valuable goodwill, which can improve you ability to do business. Prepare for the loan process early. Start by obtaining a loan application. Know what the bank will expect of you, before you plan to ask for money. Several common elements of a loan application package appear below.

• The Company’s Business Plan. This plan is a complete description of the nature and type of your business. The plan includes resources available to you and how you plan to put resources to use, in order to meet your goals. Specific goals, timelines and financial objectives should be included in the plan. In addition, the plan should include a one-page executive summary that provides a synopsis of the overall plan. Your business plan may average three to thirty pages in length, depending on the complexity of the business. Your plan should include an assessment of your competition and your role and strategy in the marketplace.
  
  
• The Company’s Balance Sheet. The balance sheet is a listing of the assets and liabilities of the firm. This statement gives the bank an idea of the stability of your firm. If the business is a start-up, include a statement of assets and start-up capital that will be brought to the firm. This statement may include your own financial contribution, as well as that of a partner or investor.
  
  
• The Company’s Cash Flow Statement. This statement will show how much liquid cash is available within the business. It provides a snapshot of how sales and expenses affect your operating cash on a monthly basis. The cash flow statement provides the bank with a picture of how much cash you have on hand and whether you will be able to assume an additional monthly expense in the form of a loan payment. A start-up company will often be asked to prepare a cash flow projection. This start-up projection will take into account the tendency for sales to begin slowly at first and build over time.
  
  
• Your Resume. If the loan officer does not feel you have the experience necessary to make a success of your business, you may have to provide a statement of your personal assets and pledge some of those assets as collateral for the loan. A lack of management experience is often cited as the main reason for small business failures. If you can demonstrate management skills that encompass: financial, operational and employee issues in your resume, then you build the bank’s confidence in the amount of knowledge and skill you can bring to operating a business effectively. This resume is most often requested of start-up businesses; however, a business owner should be prepared with his or her resume as well.

Whether you are currently in business or planning to start a new company, begin planning now. Even if you don’t need a loan today, it is good business to prepare a business plan that outlines the goals and outcomes you expect from the business. The business plan takes your ideas and puts them in writing, so they remain tangible to you and become tangible to potential lenders.

If you would like to discuss loan application preparation or business planning, contact the SCORE Association (Service Corps of Retired Executives). SCORE is a nonprofit association dedicated to the growth and success of small business. More than 12,000 volunteer, business counselors donate their time to help entrepreneurs succeed in business. All counseling and mentoring are free and confidential. For a referral to the SCORE chapter nearest you, call 1 (800) 634-0245.

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