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What Business Loan Lenders Look for in a Loan Application


Applying for a loan may feel intimidating, but if you know what business loan lenders are looking for, you can be prepared for the application process. There are different criteria for borrowers, depending upon if you are an established business owner or if you are looking for startup funds.

Whether you are an established business or a new one in the making, lenders will want to know if you are a good risk. By assessing the information you provide during the application process, the bank will determine the likelihood of you repaying the debt--and whether or not you should get the funds you need.

Established Business Owners

If you are an established business owner, you need to be prepared to prove that your business is thriving and sound. You will need to provide annual sales figures, bank account balances, a list of your current debts and loan balances, and any collateral you are willing to pledge against a loan. You should also be prepared to prove your business' profitability and show how long you have been in business.

New Business Owners

If you are a new business owner seeking start-up funds, you will need to prove that your business has the potential to be profitable. To do this, you need to have a detailed business plan that includes your monthly cash flow projections for the first 24 to 36 months you are in business. If you have collateral to pledge against the debt, include that with current estimates of your collateral's value.

Your Own Credit History

Whether you are an established business owner or a new entrepreneur, the bank will take a look at your personal credit history. This means they will study your credit card debt, personal loans, real estate holdings, tax returns, financial statements and liquid assets. The bank will pull your credit report and look at your FICO score. If your personal credit history is poor, be prepared to do a lot of explaining. Your personal credit score is not necessarily a deal breaker in the lending process, but it's definitely something the bank takes seriously.

Mind Your Own Business

Business loan lenders will also scrutinize the viability of your business, whether you are just starting out or have been working for years. So, it might help to come up with a summary of your business, explaining how the loan funds will be used. Describe your current working capital situation. Include the ways in which your business differs from the competition. With this business summary, you can persuade the lender to look beyond the numbers and look at your business itself. It's the closest you can come to "selling" the lender on your business, and proving you are a worthy risk.

When it comes to the business loan lending process, it's best to be completely prepared for the myriad of questions you will receive before you even apply. By spending a little extra time looking over your assets, coming up with a business plan, and including a business summary, you will maximize your chances of getting approved for the loan.

Sarah Baker is a documentary filmmaker and writer currently living in New Bern, NC. Her first book, Lucky Stars: Janet Gaynor and Charles Farrell, will be published December 2009. Read more about her.

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