If you’re looking to borrow money to start or grow your business, prepare by understanding beforehand, how your banker will evaluate your loan request. You’ll need to know how you and your business will be measured before even entering the bank. Here are a few ways you can get ready:
1. Ability to Repay the Loan
Most banks (especially in this economy) want to see two forms of loan repayment: cash flow from within the business and an exterior source like collateral or a second source of income. Make sure you know ahead of time, how much you have of each type. Also, if you’re a new business, the bank will only have projected cash flow to consider. Therefore, the bank may want more collateral instead.
2. Credit History
Yep, banks need the business AND each owner to have good credit. Most financial institutions are looking for FICO scores of 700+. After checking your personal credit score, compare your score to what the bank requirements are. If your credit score is lower than what the bank requires, visit with your banker or local Small Business Development Center for alternatives.
If your skin isn’t in the game, why should the bank put in theirs? Your financial institution will want to see how much money you’ve already injected into the business. Hopefully, it’s a lot! If not, your loan down payment or collateral may have to be higher.
As I mentioned in #1, your bank will most likely require a second source of loan repayment…collateral. Collateral serves as those things that a bank can sell to pay back the loan if you can’t. Most every loan option will require some form of collateral, and each bank accepts collateral in different ways. Typically, the lack of collateral is the stickiest point of many loans.
Make sure you have sufficient time, experience and success in the industry your business is in. Bankers get nervous when florists become accountants, and network engineers become jewelers.
Need to know more? Please post. I’ll be answering questions all week or you can email me directly at MFrey@Collin.edu.
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