The Deal is in the Details
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.
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 The Equipment Leasing Source, offers free equipment leasing information and competitive quotes to businesses throughout the United States.
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