by Debi Enders
When a small business seeks financing for the first time, the process can seem daunting. With a little education about the loan process and some advance preparation, however, it’s possible to remove much of the mystery – and the anxiety – of seeking a loan. Here are several things you can do to make the process easier:
Know your “borrowing cause.” This may come as a surprise, but lenders find that small-business owners often don’t know the reason that underlies their need for a loan. In other words, they might seek a loan to pay bills but cannot explain what is draining their cash. A close look at financial statements, however, might reveal that the business used cash to buy equipment or is experiencing an inventory slowdown. These are actual “borrowing causes.” Make sure you understand yours from the start.
Be prepared. In addition to confirming your “borrowing cause,” lenders review your financial statements for other reasons. They want to know your credit history, what you own (your assets) and what you owe (your liabilities) when you apply for financing. Talk with your banker and find out what documentation the bank requires. In addition to financial statements, a lender may wish to see a detailed business plan and cash flow projections. Bring all this information with you when you apply. An incomplete application can raise a red flag. And remember: Honesty is always the best policy.
Apply early. You are wise to apply for financing before you actually need it. It’s much less stressful to have a line of credit available when an opportunity presents itself than to speed through the process later. It’s also easier to obtain credit when your financial condition is strong than to wait till you’re in a cash crunch.
Credit to small businesses is available. With a well-executed application, your chances of being on the receiving end are greatly improved.
Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.
Submitted 7 years 228 days ago