Frequently Asked Questions

What You Should Know Before Applying for that Bank Loan

Q. What are the four most common reasons for obtaining outside financing?
A. Acquiring or starting a new business, working capital, seasonal peaks, and equipment acquisition

Q. What advance steps can be taken prior to applying for a loan?
A. Know your banker's interest, consider more than collateral, determine why you need the loan, and cut expenses and reduce debt

Q. What are the major components of the loan package for presentation to the bank?
A. Financial data, industry data, owner information and resumes, and the financing plan

Q. How do I know when I'm ready to apply for the loan?
A. Secure a second opinion by consulting with a CPA or attorney

Q. What changes to my business should I make prior to applying for the loan?
A. Reduce expenses as much as possible, collect receivables, restructure existing debt, liquidate unused assets

Q. What types of financial data should I expect to have available to the bank?
A. Three to five years' financial statements, future cash flow and profit projections, business and personal prior tax returns, financial ratios, and historic growth rates

Q. How can I show that my company's financial position is typical for its industry?
A. Provide industry research available through most trade associations or the internet

Q. What relevance does my personal financial situation have with applying for a business loan?
A. Many times a personal guarantee will be necessary for securing a business loan, therefore your personal finances may very well impact your business' ability to secure the loan

Q. What kinds of items should I include or exclude from my financing plan?
A. The financing plan should show the reasons for the loan and the amount requested as well as the plan for repayment. You should never exclude unfavorable information, as when uncovered, your credibility may be destroyed.

Q. What role does my CPA play in the loan process?
A. He/she has extensive experience in dealing with bankers and will know what kind of questions they will ask and the types of information needed to secure your loan. Advance preparation when applying for a loan cannot be overemphasized.

Return to Article | Return to FAQ Main | Return to SBRC Main