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Obtaining a Business Loan

A good business plan is only one element in obtaining bank and/or SBA financing for a start-up or existing business.

Here are some of the questions you can expect any bank to ask when you apply for a business loan:

  • Can the business repay the loan? (is cash flow greater than debt service?)
  • Can you repay the loan if the business fails? (is collateral sufficient to repay the loan?)
  • Does the business collect its bills?
  • Does the business control its inventory?
  • Does the business pay its bills?
  • Are the officers committed to the business?
  • Does the business have a profitable operating history?
  • Does the business match its sources and uses of funds?
  • Are sales growing?
  • Does the business control expenses?
  • Are profits increasing as a percentage of sales?
  • Is there any discretionary cash flow?
  • What is the future of the industry?
  • Who is your competition and what are their strengths and weaknesses?

Most of these questions will be answered in the business plan that you supply the bank.  But your personal credit history, collateral and assets also play a key role, as will your character and experience. They'll of course ask for a detailed, accurate and current personal financial statement. You will almost certainly be required to sign a personal guarantee. You may also have to take out a second mortgage on your home and pledge other business or personal assets as collateral.

Generally speaking, a bank will lend up to 80% of what you need and will expect you - the business owner - to put up the other 20%. Often the bank will get the SBA involved as a "co-signer" to shore up the bank's position and reduce their risk, but this won't usually significantly change the 80/20 requirement.

Bill Collier is a St. Louis-based business coach, consultant and speaker. He is the author of the book “How to Succeed as a Small Business Owner … and Still Have a Life.” His website is www.collierbiz.com, and his email is bill@collierbiz.com

 

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