Be Prepared for

Financing

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Almost all of us would be able

to get a business loan.

The question would be –

how fast and how expensive.

It has to do with your

business history, financial strength, type of revenue, cash flow, previous loan and many other factors.

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Here is a quick read about a few factors that would make the difference and that you would want to pay attention to –

 

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Business Assets

Does your business have assets that can be collateralized and be used to cover the loan? Such assets could including inventory, A/R, equipment, owned commercial real estate such as warehouse or office space and others.

 

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Cash Flow

You should be able to demonstrate that your business would be able to generate sufficient cash flow to serve the loan payments. It has to be mainly based on historical business results and some reasonable projections.

 

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Stability and Predictability 

You should be able to demonstrate the business Stability and Predictable Revenue based on a long history, solid, predictable, and recurring monthly revenue.

 

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Profitability

Is your business profitable? Or can you show that it would become profitable once you secure financing?

 

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Tax Returns

Do your tax returns support the profitability and the story you’re trying to portray? Too many times I have seen tax returns, showing much weaker results than what the business is trying to show for the purpose of securing the loan. Needless to say – your business tax returns will be analyzed by potential lenders and they have to reconcile to the other material you present to the lender.

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Solid Business Plan

Do you have a plan? Detailed budget and projection that includes reasonable assumptions regarding your growth strategy and covers, in details, all aspects of your business, including overhead, marketing, payroll, inventory cash flow needs and others.

 

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Organize Your Business

Make sure your accounting is fully caught up, you track budget, you have an org chart and that you have a reasonable processes in place.

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Be Current 

Be current on all areas: A/R, A/P, state tax payments, income tax and other obligations.

 

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A/P and A/R Aging

Lenders prefer to see that you’re current on your aging. If, for example, you have a vendor that according to your agreement with him has to be paid within 60 days from invoice date but in reality, for years you have been paying him only after 120 days – do not rely on the fact that you have been doing this with the vendor for years. Contact the vendor and change the agreement to reflect 120 days.

 

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Ask For The Right Amount of Loan

The amount of loan has to be such that truly satisfies your needs, and at the same time, your business clearly can afford and pay back.

 

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Balance Sheet Strength

It is important to have a strong balance sheet, i.e., more assets than liabilities. It is even more important to have more current assets than current liabilities (current mean those that are expected to be realized within the next 12 months). So, learn your balance sheet and see if you can improve it.

 

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Owner's PFS

A strong Personal Financial Statements (showing the owners’ personal net worth) of the business owners and the main owner’s willingness to sign a personal guarantee would often make the whole difference.