What Startups Need to Get a Business Loan, Part 2
In part 1 of this article, entitled "Three C's", we looked at
the overview of startup business loan requirements from the
lender's perspective. We read how cash, good credit and
sufficient collateral form a joint partnership to enable a loan
request to bond together into a doable deal. Part 2 will convey
the borrower's documentation necessities in a more detailed
fashion. Bear in mind that the following points are of a
"generally complete scope", and that different types of lenders
may have additional, similar, or unique conditions to adhere to.
All would-be borrowers of startup business capital need to begin
to create and/or gather the following information:
Business Plan - This is not the same as a full scope "business
plan" that you would have professionally prepared to approach a
venture capital firm. What your plan needs to document is the
type of business, ownership information, legal entity (i.e.,
sole proprietorship, partnership, corporation, etc.), the
origination date of the company, the type of product or service
offered, and any organizational or management information that
the lender should know about, such as:
How many employees will you have, if any, and what their
function will be How you intend to get business What your
selling terms are (e.g., 2% 10 days, net 30) What facilities are
utilized, etc.
Use of proceeds - Disclose the loan amount and how the funds
will be used (percentage of working capital, of new equipment,
of paying off other debts, etc.).
Projections - This is a major area. If you can get letters from
two or three trades that say they are ready to give you projects
once you are funded, it would help tremendously. Also, include
income and expense projections for the next three years prepared
by you or by an accountant. Generally, lenders will want to see
cash flow such that your net income from the business will be at
least 1.5 times that of the debt service.
Personal Financial Statement - Make sure to list all of your
assets and all of your liabilities. List any personal debt owed
to banks, finance companies, etc.
Personal Tax Returns - Provide copies of the last three years
personal tax returns. Make sure to include all pages.
Personal Resume - You can create this yourself; there's no need
to hire a professional to do this. However, do your very best to
make it look professional.
Articles of Incorporation - If the business entity is a
corporation, provide a copy of the Articles of Incorporation and
the borrowing resolution of the company.
Partnership Agreement - If the business entity is a partnership,
provide a copy of the Partnership Agreement.
Business References - Provide three letters of reference, one
being from another bank or lender. Ask for testimonials. Do not
just list names and phone numbers.
Listing of Fixed Assets - List all your fixed assets with their
approximate fair market value and their make, model and serial
numbers. List their liquidation value as well.
Equipment - If any of the proceeds are for new equipment,
provide invoices or equipment description(s). List any equipment
for the business in your possession, it's age, a copy of title,
the original dealer invoice, and the amount of hours on the
equipment.
Bank Statements - Include bank statement(s) to verify the amount
of cash you have to put down on the loan.
Credit Report - If you have ordered and received your personal
credit report, include it as well.
Professional Assistance - List the contact information of your
banker, your accountant, your attorney, and your loan broker.
With all of this information compiled, you're well on your way
to having a nice package to present to a lender. A very wise
move would be to contact a professional loan broker to assist
you in putting the documentation together into a format that
commercial lenders and banks want to see. Brokers are also able
to submit your loan request to a few different lenders to
provide you with the best possible rates and terms. He or she
will also strengthen the request by making certain that all of
the appropriate paperwork is gathered and put into it's proper
order.
Though this procedure may seem daunting, and the documents take
a good amount of time to create, there is an additional benefit
that is not readily apparent to most borrowers. If, for one
reason or another your loan is not approved with the initial
attempt, it only takes a few forms prepared by your broker to
convert your request into an SBA loan. At that point, you may
have a much better chance of funding. Since it's beyond the
scope of this article to discuss SBA loans, contact a loan
brokering professional for more detailed information.
About the author:
Mark Uptain is the owner of Regent Business Capital, a loan and
lease brokerage that works with lenders nationwide to help small
and medium-sized businesses get financing. His website
www.EquipmentLeasingSource.com, offers free equipment leasing
information and competitive quotes to businesses throughout the
United States.
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