| 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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