How to Prepare Your Business Loan Application

Preparing a loan application can be a tense time for an entrepreneur. You need this money to start or expand your small business, but the bank is asking for a lot of detailed information. How can you be sure whether you’re providing too much data … or not enough?

Those concerns are well-founded. When a bank turns down a loan application, the reason is often due to an incomplete or inaccurate loan application, business plan and/or financial statements. To gain the confidence of the lender, you must demonstrate both your seriousness and preparedness. Loan officers look for red flags in packages. A well-prepared package that accurately reflects the business and provides all of the information requested will indicate just how serious you are about receiving the loan, and repaying the debt in full.

If you’re starting a business, get to know the loan officers at your bank long before you’re ready to prepare an application. They will be more comfortable making a loan to a person they know. Early meetings give you a chance to tell loan officers about your business and its aspirations, thereby laying a foundation for a business relationship. A good, long-term banking relationship brings valuable goodwill, which can improve your ability to do business.

Another early step is to familiarize yourself with the loan application process. That way, you will know what the bank will expect of you before you plan to ask for money. Here are several common elements of a loan application package:

• The Company’s Business Plan. This is a complete description of the nature and type of your business. The plan includes resources available to you and how you plan to put resources to use to meet your goals. Include specific goals, timelines, financial objectives, and a one-page executive summary that provides a synopsis of the overall plan. Your business plan may average three to 30 pages in length, depending on the complexity of the business. Also include an assessment of your competition and your role and strategy in the marketplace.

• The Company’s Balance Sheet. The balance sheet is a listing of the assets and liabilities of the firm. This statement gives the bank an idea of the stability of your firm. If the business is a start-up, include a statement of assets and start-up capital that will be brought to the firm. This statement may include your own financial contribution, as well as that of a partner or investor.

• The Company’s Cash-Flow Statement. This statement will show how much liquid cash is available within the business. It provides a snapshot of how sales and expenses affect your operating cash on a monthly basis. The cash-flow statement provides the bank with a picture of how much cash you have on hand and whether you will be able to assume an additional monthly expense in the form of a loan payment. A start-up company will often be asked to prepare a cash-flow projection. This start-up projection will take into account the tendency for sales to begin slowly at first and build over time.

• Your Resume. If the loan officer does not feel you have the experience necessary to make a success of your business, you may need to include a statement of your personal assets and pledge some of those assets as collateral for the loan. A lack of management experience is often cited as the main reason for small business failures. If you can demonstrate management skills that encompasses financial, operational and employee issues in your resume, then you build the bank’s confidence in the amount of knowledge and skill you can bring to operating a business effectively. This resume is most often requested of start-up businesses; however, a business owner should be prepared with his or her resume as well.

Whether you are currently in business or planning to start a new company, begin planning now. Even if you don’t need a loan today, it’s good business to prepare a business plan that outlines the goals and outcomes you expect from the business. The business plan takes your ideas and puts them in writing, so they remain tangible to you and become tangible to potential lenders.

You can plug into a wealth of business know-how by contacting your Santa Barbara chapter of SCORE “Counselors to America’s Small Business.” SCORE counselors offer free, confidential advice about every aspect of starting, running and growing a successful business, even mentoring.