What Do I Need to Know With a First Time Business Loan?
Before you secure your first business loan, there are crucial factors to consider. Business loan applications may give you hints on what each lender values most. Many lenders require a business plan to see how you're going to pay them back. Your personal credit is not the biggest factor, but it can definitely make a difference when pursuing bank loans. Once you've been conditionally approved, you will be required to make sure your paperwork is in place.
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Loan Application
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Business loan applications vary slightly, but generally require the same basic information. This will include standard information such as your contact information, legal structure, annual sales and your company's organizational chart. It will also request a breakdown of how you intend to use the requested funds. Be prepared to show supporting documents like personal net worth statements, business financial statements and any collateral you are willing to offer up.
Business Plan
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Business plans are vital. They express your business idea in a detailed and comprehensive way. Lenders appreciate this because they want to know that their money is in responsible hands. Furthermore, they will seek out certain elements within your plan such as what it will take to make your company profitable and when will they be paid back. Incorporate realistic loan repayment scenarios within your business plan to build confidence with potential lenders.
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Personal Credit
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In some cases, a conflicted underwriter will approve a business loan if the borrower has good credit. The rationale is if you have good personal credit, you are less likely to default on a business loan. If you're credit is less than favorable, adding relevant collateral such as real estate, may gain the nod from your lender. Additionally, you may be able bring partners into your company as co-borrowers to boost your standing with the bank.
Legal Documentation
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After a lender says yes to you, your company is responsible for fulfilling the terms they've set out. This may include submitting copies of your incorporation documents, previous tax returns, lease agreements and sales contracts. Before loan funding can be released to you, loan agreements must be signed. Study each page carefully because a single clause could bring unwanted effects. For example, a "hidden" accelerator clause allows the bank to declare the entire loan amount due and payable immediately.
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References
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