What
are your chances?
There are
several key areas that lenders use to evaluate potential borrowers.
•
Credit. For established businesses, the lender
will focus on the company's credit and outstanding accounts. For
businesses less than three years old, your personal credit will
also be evaluated.
• Cash flow. This includes audited results
and detailed future projections. Many lenders require a cash flow
that is 1.25 times the total cost of the company's total and expected
debt.
• Collateral. Real estate, valuable equipment,
or other property can be used as collateral that the lender can
seize if you default on the loan. In some cases, contracts for future
work can be used to guarantee loans.
• Management. Your management team's ownership
experience, tenure with the company, and familiarity with the industry
will all affect your chances.
• Capital and equity. This is the total value
of your cash on hand, equipment, facilities, and other tangible
assets. "Debt-to-equity ratio" is often used as a rule
of thumb - lenders will look for situations where your total debt
is no more than 3 or 4 times the equity.
None of
these have hard-and-fast rules, however. Other factors such as proven
profitability and the quality of your business plan will contribute
to the lender's decision. There are several steps you can take to
improve your chances of getting the loan you need:
Establish trust. The first thing you'll want to
do is try to establish a relationship with the lender sitting across
from you. The more they know you as a person, the more they'll trust
you. And when it comes to asking for money, nothing is more important
than trust.
Refine the business plan. Make sure your business plan is optimistic,
but don't sugarcoat potential problems or risk. Be thorough about
your plans for the future, address contingencies, and talk about
the qualifications of your management team. The business plan is
one of the primary documents that lenders use to gauge the stability
and future of your business.
Payback. Of course the main thing weighing on the
mind of the potential lender is how you are going to pay them back.
One step beyond that is how you are going to pay them back if your
numbers fall short of your projections. Addressing both of these
issues thoroughly can help put their mind at ease.
Choose the right size loan. Avoid asking for more
or less money than you need. You shouldn't write your business plan
to justify the amount you want - instead, use your business plan
to determine how much you need.
Find the right lender. Some lenders focus on small
business loans - these are your best chance for success if you fit
the mold. If they're familiar with your industry, all the better.
The next section talks more about evaluating lenders.
Next
Topic 
Sources
for business lending |
