WHAT LENDERS ASK FOR & WHY

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1 WHAT LENDERS ASK FOR & WHY How to Put Your Best Foot Forward

2 INTRODUCTION If you re considering a business loan, it s important to know what lenders will ask for to ensure you have the best chance for loan approval. One of the most important factors is your financial documentation. Accurate and thorough financials could be the difference between 6% and 130% APR. Unfortunately many business owners have trouble keeping extensive and accurate financial records. It s definitely understandable -- as a small business owner you re busy enough already, and accounting often takes a back seat to day-to-day operations. Here s the truth: the more your books are in order and the more information you can provide your lender, the better (and faster) your financing will be. In the following sections we will review key issues that you should consider as you prepare to apply for financing. 1

3 THE FUNDAMENTALS Underwriting is the process that lenders go through to assess your creditworthiness and risk. Lenders that are able to offer the lowest rates often require the most documentation during the underwriting process. Depending on the type of loan you re applying for, the lender may ask for items such as business tax returns, business bank statements, and personal credit history during the underwriting process. As a general rule, the more information you can provide your lender, the better. 2

4 COMMON DOCUMENT REQUIREMENTS Both business and personal credit histories are taken into account when underwriting a small business loan. Business Credit: In order to assess your business creditworthiness, the lender will likely ask you for business documents that may include the following items: Business tax returns Business bank statements Recent financial statements Personal Credit: In addition to business credit history, many lenders will review personal credit history for anyone holding more than 20% ownership in the business. Lenders may ask for the following items: Personal tax returns Personal credit history Outside net woth (assets you own outside ` of your business) Bottom line: Don t let your business or personal credit history scare you away from applying! Many lenders will work with you to help your business grow. 3

5 BOOKKEEPING One of the most common problems faced by small business owners is maintaining accurate financials in a timely manner. Hiring a professional bookkeeper to manage your books should be viewed as an investment, not an expense. Below are some benefits of hiring a professional: A bookkeeper can help establish policies and procedures for paying bills, collecting from customers, and closing monthly financials, etc. A bookkeeper will be able to maximize your depreciation and deductions at tax time, potentially saving you hundreds or thousands on your taxes. A bookkeeper will know your business almost as well as you do, and will help you manage your cash flow and guide you in your financial decision-making. If you re not ready to hire a bookkeeper full-time, there are many professionals who work on a part-time basis and many who specialize in small businesses. Check out The American Institute of Professional Bookkeepers (http// for some great tips. 4

6 INSURANCE & LICENSING Lenders will also look at non-financial criteria when underwriting your business. Insurance Insuring your business against all relevant risks increases your creditworthiness to potential lenders. Examples include: general liability insurance, property insurance, and commercial automobile insurance. Licensing Lenders will often check to make sure you re in compliance with any licensing or permit requirements for your industry. Licensing requirements are managed at both the federal and state levels, so make sure you check both. Examples include: contractor licensing, health permits, building or zoning permits. For more information, visit the U.S. Small Business Administration 5

7 KNOW YOUR NEED! Be prepared to clearly articulate the purpose of the loan and exactly how the funds will be used to help your business grow. Having a well established plan for using your loan helps your lender know that you are effectively running your business and have a long-term vision. Think of it this way: if you were a lender, wouldn t you be more comfortable providing capital to a business owner who has a clear plan for growth and measuring his or her return on investment? Clearly stating your plan for the funds helps your lender find the right financial product for your situation and often results in improved rates. 6

8 THINGS TO WATCH FOR Here is a list of issues that can hinder your ability to get a well-priced, fast business loan: Not disclosing other debts, liabilities, or liens Not being insured Not having necessary professional licensing Outstanding tax obligations Incomplete financial statements Combining personal and business finances (for example, personal charges on a company credit card) 7

9 DOCUMENTS REQUIRED BY DIFFERENT LENDERS Different lenders ask for different documents, but in the world of small business lending a few more documents can go a long way. Bank Statements, last six months Personal Credit Application/FICO Score Profit & Loss Statement Balance Sheet Debt Schedule Tax Return, last two years Invoices/Contracts for Top 3 Customers Explanation of Use of Proceeds A/R and A/P Aging Business Licenses & Registrations Personal Background Information Resumes Business Plan Business Credit Report Articles of Incorporation Contracts with third parties Franchise Agreements Average time to funding Merchant Cash Advance Lenders (30-150% APR) Investment Lenders (such as Dealstruck) (9-27% APR) Bank Loans (Prime Rate to 12% APR) 1-7 days 4-14 days days 8

10 SUMMARY Nearly all quality lenders will ask for the following items: Business tax returns from the last two years Bank statements of all business accounts Current year balance sheet and profit & loss statements Most recently filed personal tax return CLOSING The better the quality of the information you provide to your lender, the faster the process and the better the product fit. View bookkeeping as an investment, not a cost for your business. The fewer documents you are asked to provide a lender, the more you might end up paying! 9

11 ANY QUESTIONS? The financing experts at Dealstruck can point you in the right direction. Contact us at , or visit us at! 10