by Debi Enders
When reviewing loan applications, bankers usually look for answers to two questions: Will your business likely be around for the term of the loan, and will it generate enough cash to pay off the debt? Make sure your application includes a business plan, focused on your current performance. Be realistic about future performance and be prepared to defend your forecasts.
Banks will perform a cash flow analysis to determine whether your company can afford the loan. If the company can indeed afford to repay, then the collateral is reviewed. The collateral should be similar in value to the amount being borrowed; in other words, the closer the collateral value is to the borrowing amount, the better chance the loan will be approved. The bank will also see whether you have financial reserves or collateral for unexpected downturns or setbacks. An ideal candidate will have a solid, long-term track record of meeting financial obligations. The owner’s personal credit history is considered along with his or her personal debt service.
If the company can afford to repay the loan, the collateral is sufficient to secure the loan and the owners have good personal credit, then you are well on your way to getting your small-business loan approved.
When getting a loan, ask for your banker’s advice. You’re more likely to hear “yes” if you’ve taken the time to build trust with the bank. Remember, bankers want their clients to succeed. The more they know about you, the better they can support you in your efforts.
Debi Enders (debi.enders@commercebank.com) is assistant vice president, small business banking at Commerce Bank.
Submitted 9 years 363 days ago