5 Ways to Plan Ahead for Your Loan Meeting
Applying for a small business loan or line of credit can be a key step in starting a new enterprise or moving it forward.
When you meet with your lender, they’ll request documents and ask questions to get to know you, your business, and your goals. Being well-prepared for this meeting can help you demonstrate that you’re a creditworthy client.
Here are five ways to get ready:
1. Craft a Business Plan
Commercial lenders like careful planners. Be sure to have a clear, detailed explanation of your business, its place in the market, and your vision for growth. Be ready to discuss your products or services, your industry and competitors, and the steps you are taking to build long-term success.
Be prepared to outline the purpose of the loan, whether it’s to start a new company, finance an expansion, build your team, secure equipment, or roll out a new product line. Your lender will want to see that you will use these funds strategically and have a solid plan for covering your operational expenses and repaying the loan.
You’ll also need to explain your ownership structure, whether your business is a sole proprietorship, a partnership, an LLC, or something else.
2. Get Your Documents in Order
Your lender will want to review your financial documents, too. You’ll need to show your enterprise’s revenue, expenses, assets, debts, receivables, and cash flow.
You should also be ready to furnish your business’s bank account balances and recent tax returns, as well as personal financial statements, tax documents, and contact information for you and anyone else who owns a substantial portion of the business.
It may also be helpful to use a forecasting template – many of which can be found for free online – to project your business’s future revenue and expenses. Lenders understand that no one has a crystal ball, but demonstrating that you’re thinking ahead and setting realistic objectives can go a long way to establishing a trusted financial relationship.
3. Assess Your Collateral
If you’re applying for a secured loan, you’ll need to prove that you have assets that can serve as collateral. Putting up collateral is a calculated risk, since it can be seized if you fail to repay the loan, but it can increase the amount of money that you can borrow and get you a lower interest rate. In other cases, commercial lenders won’t ask for collateral, but they may require a personal guarantee on the loan or charge a higher interest rate.
Depending on your business and personal circumstances, collateral might include:
- Cash in your bank account, plus cash equivalents
- Investments like stocks, bonds, and mutual funds
- Real estate including buildings and undeveloped land
- Business equipment including tools, technology, and fixtures
- Vehicles like company vehicles or agricultural machinery
- Accounts receivable including any unpaid invoices
- Inventory including raw materials and work in progress
- Intellectual property you hold, like patents and licenses
4. Know Your Choices
It’s important to know the different loan types available and how they can support your business. The amount of funds you need, your creditworthiness, and timing will all play a factor in determining what your best option is. Here are a few loan types to consider:
- Business term loans to meet one-time financing needs, such as renovating your facility or purchasing equipment
- Business lines of credit to provide flexibility for short-term cash flow and access to more capital as you repay
- Commercial mortgages to give your business room to grow and entry to real estate as a long-term investment
- Business credit cards to expand your available capital for day-to-day expenses and build your credit history
- Merchant cash advances to get quick cash upfront in exchange for a percentage of your daily or weekly sales
5. Understand the Six C’s
The factors that most influence your creditworthiness and ultimately your ability to secure a business loan are sometimes known as the six C’s. Understanding and optimizing each of these items can help you get where you want to go:
- Capital refers to your assets minus your liabilities, as well as the relative liquidity of those assets
- Capacity means your income stream, ability to service debt, and preparedness to ride out economic cycles
- Collateral is any assets you have that can be used to secure loans, including cash, receivables, equipment, and real estate
- Conditions are your business’s strategic positions within your industry and the overall marketplace
- Character includes your personal reputation, knowledge of the industry, and borrowing track record
- Communication signifies your readiness to start and maintain a sincere dialogue with your lender
Be in the Know
To assess all the borrowing options available to you, consult your financial institution.