Small business lending: A guide to applying for a loan

The truth about bankers is that we love nothing more than helping people turn their dreams into reality. We entered this line of work to help others reach their financial goals and find their individual path to success. For many, that means opening and running a successful business.

For business owners who are ready to take their company to the next level, we've provided some insights into how to prepare for a business loan, including an overview of the process and what to expect during each step of the way.

Preparation is pivotal

Lenders want to know how strong your small business is financially. This determines if they feel comfortable extending credit to you. There are policies and guidelines in place to help guide their decision. By educating yourself and preparing, you have a better chance of a loan approval.

In most cases when applying for a business loan, you will be asked for a variety of figures and documents from your business. And, banks will also want information about your personal finances to ensure you are financially stable and able to cover any losses your business may incur.

Small business lenders will look at:

• Last two years of both business and personal tax returns (If you are claiming a loss, you might have some challenges)
• Business financial statement, which is comprised of an income statement and balance sheet:
  • Profit and loss/Income statement - review and track your income and expenses for a specific amount of time, usually a quarter or fiscal year
  • Balance sheet - This is a list of assets, equity and liabilities for your company, detailed out over a specific length of time
• Personal financial statement - you will need to provide a personal financial statement listing all your personal assets and liabilities, including:
  • Assets - cash or cash equivalents, property and real estate, equipment, accounts receivables, cash-value insurance policies
  • Liabilities - a complete list of your business's debts and financial obligations like mortgages, loans and accrued expenses
  • Ongoing expenses - any costs your business incurs, such as overhead costs
• Collateral - in the loan process, collateral is defined as an asset that a business owner could use to help secure financing, such as:
  • Real estate
  • Vehicles
  • Cash value insurance policies
  • Equipment
• Personal credit score
  • Personal credit is a factor in business loan decisions
  • Web resources like annualcreditreport.com and organizations like CHES INC can help you find your personal credit score
• Your relationship with them
  • Build and develop a relationship with your lender. It's important that they not only know your business, but that they get to know you as an individual.
  • Request to meet with your lender regularly to review your financial statements and discuss your business's future

The one-on-one conversation

Now that you have a better understanding of what is needed for a small business loan, you should have an in-depth conversation with your lender about your loan request. Every business is different as is every business loan. Your lender can evaluate your business and financial goals and help you determine what is the appropriate loan structure to meet your needs. You will then complete an application and provide the necessary financial documentation. Your lender will also want to visit your business to see the operations, real estate and inner workings of your company.

Once you have met with your lender and your application is submitted, the bank will pull your credit for a thorough review and begin the underwriting process. Typically, you will need to wait 7-10 business days for a decision. Once you have the lender's decision, your lender will guide you through the process as funding can take up to 30-45 days depending on the type of loan, so be prepared to give additional documentation.

While this overview does not cover every detail of applying for a loan, it serves as a good foundation for what to expect. By understanding your lender's expectations at the start of the process, you are already ahead of the game and laying the foundation to take your business to the next level.

Our small business specialists are ready to help you with your small business financial needs through guidance, support and service. We also offer a series of online tutorials to help your business succeed. We're always adding new topics that we believe can help you build and manage your business. Explore our small business courses.

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