Jan 23 2021by Stormi Scott

How To Successfully Prepare For Your Business Loan Application

Applying for a business loan can be stressful. On one end, you're trying to prepare all of the business's financial data and history so that you're ready for lenders. On the other hand, you're wondering how much you can even finance because truthfully, it's your first time applying and you don't even know where to start or how to think.

Here are a few business loan tips for you so that you can feel confident and comfortable walking into your next financing conversation.

Know Your Business & Personal Credit

Your first step should be checking your credit. Your business credit score is separate from your personal credit score. If you do not have any business credit history, chances are likely that your lender will look at your personal credit score.

Credit history will play a significant role in what type of loan you qualify for and is especially crucial to a lender in certain circumstances. In commercial financing, you don't have to have perfect credit, but you need to be aware of any concerns. Here's an article on how to improve your business credit score .

A high business credit score helps when applying for loans because it demonstrates to your lender that you can pay on time. You also have a chance for a lower interest rate if your credit is strong enough.

Use Technology To Your Advantage

There are so many loan calculators out there that it becomes overwhelming. But, for peace of mind, business loan calculators are useful to a certain extent, especially if they have the ability to run your numbers against today's underwriting guidelines. When running an analysis, users have to make sure that they have all of their documents and financial information in order before they start entering numbers.

Prepare An Executive Summary

An executive summary is like the bird's eye view of your entire business plan and should highlight the most important parts of the plan. Lenders will want to see that you have a clear vision for your business, a realistic view of goals you can achieve in the future, and a plan to repay them. You can do this in a brief summary document.

What To Include In An Executive Summary:

Objective
Target Market
Products Offered
Sales Strategy
Marketing Strategy
Industry & Market Analysis
Funding Allocation
Employees (Hired / Involved)

To get you started, here is a template from HubSpot that you can use.

Gather Your Legal Documents

Each loan program has specific forms you need to fill out, but each lender asks for relatively the same forms. We recommend getting these forms together well in advance before meeting with lenders so that you're not scrambling to get things together.

Compare Lenders & Requirements

Understand that every lender is different, just because one may be willing to finance your business or property, you may get more attention or better terms with another lender.

Keep in mind that larger lending institutions take on bigger clients because larger loans mean an increase in profit. With that being said, you could potentially get better terms at a smaller institution. Plus, many people find themselves building a better relationship with lenders at smaller banks than larger ones.

What To Look For When Evaluating Lenders:

Loan Amount
Interest Rate
Fees
Collateral Requirements (Vary Per Lender)
Size Of Lending Institution

Have Financial History Ready

Financial statements are like the financial dashboard of your business. Be prepared to provide your balance sheet, income statement, account information, bank statements, and tax returns as part of the process. Most commercial lenders will require this information to consider your loan, although some put more emphasis on this than others.

Understand Your Numbers

You need to demonstrate that you know how your business works and can repay the lender. For example, knowing how your business cash flows monthly is an advantage when exploring any financing for your business.

Determine How Much Debt Your Business Can Afford

Lenders will review your financials and calculate your debt service or interest coverage ratio, also known as your DSCR. If you calculate your DSCR before applying, you can make a very compelling case for why you need the amount you're requesting and why you can be trusted to pay it back. Learn more about DSCR and the role it plays in commercial financing .

Invest Some Of Your Own Money

If lenders see that you are willing to put up some of your own money in your business or property, they'll know you are serious about moving forward. Personal collateral also decreases a lender's risk in a transaction and can increase your odds of being approved.

Speak The Same Language As The Lender

When applying for any business loan, the lender is going to ask you an array of questions. Financial literacy is an advantage when seeking commercial financing. Be prepared to answer lender questions quickly and clearly. Providing incorrect information can hinder your approval.

Ready to apply?

We get it. Applying for financing can be a scary experience, especially for those who have never done it before. To ease the stress, we created a finance tool that allows you to pre-qualify yourself from the comfort of your own home.