Whether your business is in the start-up or growth phase, you may need to borrow money sooner or later. Although every loan process may be different, you can do several things to make the loan process easier. Most importantly, remember that loan officers look at many factors, not just your financial record. And keep in mind that banks lend based on credit and repayment ability, not just against collateral.
Types of Loans
Have you investigated alternative types of capital sources? More options than just a traditional loan could be good for your business. For example, you should look into the term of the loan and determine whether or not it matches your intended purpose. You should also consider whether the amount of the loan matches your projected cash flow moving forward.
Documentation
Before you approach a loan institution or your bank, you will need to gather several documents, including your company’s tax records. You may even need your personal tax returns. You also will need your financial statements from the past couple of years as well as the current year-to-date statements. And make sure you also know your cash flow and projections.
Business Plan
The bank will want to see your business plan. Have you created one, and is it current? If the answer is no, you may need to return to the drawing board before approaching the bank for a loan. You should ensure this plan includes important information, such as your major customers, suppliers, and key employees. Be sure to include a current marketing plan as well.
Business Practices
Some key business practices should be considered so that you can reinforce good financial behavior with a lender. For instance:
- Do you have a credit policy, and is it enforced?
- Does your accounting system adequately show the condition and results of the business?
- What is your accounts payable policy?
- How current are your receivables?
- Do you take advantage of any discounts for prompt payment?
- What type of insurance coverage do you have?
- Is there adequate insurance for liability and property damage?
Tax Considerations
You may need to demonstrate good tax health. Are your tax filings current, including payroll, property, and income? Have you had your returns prepared by a qualifying professional to ensure that your tax benefits are maximized? Applying for a loan can be a stressful experience, but it doesn’t have to be. Being prepared can make the process easier and less stressful and hopefully improve your chances of getting your loan approved.
Before you make any decisions, contact us to see how we can help you today.
We welcome the opportunity to put our construction accounting expertise to work for you. To learn more about how our firm can help advance your success, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
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