Lenders want to answer one question: can this business pay the loan back? Your job is to make that answer easy to see. Here is how to prepare.
What lenders look at
- Cash flow: does the business earn enough to cover its expenses and the new loan payment? Many lenders want to see a debt service coverage ratio of around 1.25, meaning $1.25 of available cash for every $1 of debt payments.
- Credit: your personal and business credit history.
- Time in business: two years or more makes approval easier.
- Collateral: equipment, property or other assets that secure the loan.
- Your plan: what the money is for and how it will help the business earn more.
Documents to gather
- Business and personal tax returns, usually the last two to three years
- Year-to-date profit and loss statement and balance sheet
- Recent business bank statements
- List of current debts with balances and payments
- Business licenses, Articles of Organization and operating agreement
- Personal financial statement
- Business plan and projections for newer businesses or larger loans
Fix these before you apply
- Messy or late books: lenders compare your financial statements to your tax returns. They must match.
- Mixed accounts: personal and business money in the same account weakens your application.
- Unfiled taxes: missing returns or IRS balances are often deal breakers.
- Too many write-offs: very low reported profit lowers the amount you can borrow. Plan ahead with your tax preparer.
Types of financing to consider
Bank term loans, lines of credit, equipment financing and SBA-backed loans such as the 7(a) and 504 programs each have different requirements. An SBA loan often has longer terms but more paperwork.
We prepare your financial statements and loan package so you walk into the bank organized and confident.
This article is general information, not individual tax or legal advice. Rules and fees change; confirm current requirements with the official source or contact us about your situation.