Need a loan for your company? Are you trying to get a business loan from a bank that either you have a relationship with or is local and easy to submit a loan application?
This is what a lot of business owners out there do, but come to realize that these banks are going to want a lot from you.
It can be really frustrating and disappointing at the same time. I know of someone who needed a commercial bank loan for more that $1,000,000 to finance their receivables from a popular distributor. In order for this deal to close, the bank required the borrower to sign a lien on their house or they would net get approved for a commercial bank loan for their small business.
That bank that they used were not playing nice either and giving the borrower a hard time and attitude as well.
There was a lot of bank and for conversation and objections. It did not matter to the bank that they had great business credit and personal credit. What the bank did want was a PG (personal guarantee). Banks lend money to people who don’t need money. Very traditional and difficult to get approved unless there is some sort of backing like and SBA loan or a guarantee that the money they loan will be returned. Not to mention the long processing time and tons of documentation that needs to be completed.
Here is one of the reasons why banks have to be conservative and careful about who or what they lend their money on. First it is not a good idea for a bank to approve a small business loan based on a business plan. No matter how good the business plan is, it should not be a sole reason for approval, despite how passionate an entrepreneur may be about the business idea.
Here is what you could generally expect.
Banks will lend money to start up businesses, but they will not take all of the risk. What will be needed is the federal Small Business Admin (SBA) loan programs that will be able to guarantee a portion of that businesses start up costs. With government backing up a portion of the loan, it will reduce risk to the bank.
Let’s look at an example of accounts receivable financing… When a business pledges their accounts receivables for a commercial business loan, the banks underwriter will; check and verify that those companies on their receivables are solvent. And even if these companies are solvent not all of them will be accept by the underwriter for one reason or another. Same with inventory loans. If the inventory is old, obsolete or what ever other reason, it will not be accepted.
Let’s be honest here and talk about the assets or collateral the banks really want… They want your personal assets, your house or equity in your home.
Banks want to see a business plan as it will be a requirement for a majority of the small business loans out there. They will be looking an executive summary, company summary as well as they will want to know about the products, the team, the market and company financials.
Financial Details about Your Business
Here is what else they will want to collect from you. This is the documentation that you will have to send to your bank… a list of current and past loans, the debt that you have incurred, your investment accounts, a list of your bank accounts, credit card accounts and they will want to look at tax ID docs and everything you can provide for your complete contact information.
Provide a list of all of your receivable accounts that includes all of their business information. This will also include the bank being able to check those businesses credit histories, their sales and payment histories.
Similar to the above regarding receivables, the banks want credit references. They want to know about those companies they you make purchases from, how well do you pay and your payment history behavior.
Ok the pain continues with you providing them your balance sheet which will also list all of the assets of the business.
You will be required to provide your Profit & Loss statements where they like to look back as far as 3 years. Some banks will make exceptions to this but do you really want to keep looking for more banks and going through all of this? If your business history is short but your credit is good and have assets that they can put a lien on, then yes they might consider a shorter business history. However they really want to make loans on businesses with longer histories unless you are trying to get a start up loan as that will have different guidelines to meet.
The bank will want to know who is doing your books and what they look for is if you utilize the services of a CPA and have audited statements. Because if you are paying good money for a CPA, then it demonstrates that you have some responsibility for accurate accounting.
Bigger companies generally have audited statements as a part of their best business practices.
Since banks always want to secure their loans with collateral not all of them are going to require audited statements, but many will. Again the banks do all of this to significantly reduce their risk when lending commercial loans to small businesses.
Your Personal Financial Details…
Get ready to provide your net worth, social security number as well as a list of your liabilities such as home and auto loans, credit cards and anything else that you owe money on.
For businesses with several owners, you will need to provide a list of the share holders and they will like to see financial statements for those who have a significant portion of shares.
The banks are collecting your personal information because they will want you to make a personal guarantee on your commercial small business loan.
After all of that the bank underwriter may dig even deeper and want to collect insurance information and past tax returns.
So as you can see if you go to a bank to get a small business loan not only are they going to want what is listed above in this article but the time to process all of this could take up to 2 months.
Many businesses need money quick when they have a need for a loan.
The good news is that it is not necessary to provide full documentation in order to get a loan for your small business.
There are other alternative lending sources that are ready to help you today.
This is how we help people get small business funding quickly.
Depending on the loan scenario the time to get funds or a loan can range from 2 days to 2 weeks.
We offer many different programs to help small business get working capital.