The main reason small business loan applications get turned down is because of a lack of preparation, said the experts presenting at an information session on how to access capital for small businesses at the Fredericton Chamber of Commerce recently, reports Stephen Llewellyn in The Daily Gleaner (New Brunswick Business Journal).
Andy Taylor, lending service manager at the Progressive Credit Union Ltd., Andrew Foreman, small-business account manager with Scotiabank in Kings Place, and Kirk Cornell, senior manager in Fredericton for the Business Development Bank of Canada all agreed that to get a small business loan, you need to have a solid business plan, passion, and "a little bit of your own cash".
Which is all another way of saying that lenders want to know, as far as can be known, exactly how much risk your venture involves and that they are going to be repaid for taking it on.
So what does it mean to be prepared to get a small business loan?
Christopher Yuskiw explains:
"While every deal that a bank looks at is unique and presents its own risks and challenges, there are some common things that most banks will look for.
Be prepared to provide:
- A business plan that gives a thorough explanation of your business and its strategy
- A project cost worksheet (what are you going to use the money for?)
- Management resumes (how much experience do you have in this field?)
- Two years of personal tax returns and all schedules for every owner of the business (typically defined as a person who owns 20% or more of the business)
- Personal financial statements for each owner
- Two or three years of projections showing the business's expected cash flow (broken down monthly)
- A business debt schedule (does the business have any other debt? I.E. personal notes, other start up financing, etc)
- Collateral (what do you have in terms of assets that the bank can take as collateral?)
It should also be pointed out that most banks have minimum credit score requirements for all parties guaranteeing debt (a 700 or greater credit score for start ups and 650 or greater for established businesses).
Though useful upfront information will get you into the front door, don't be surprised if a bank requests additional information. Start at a bank where you have an existing relationship and have a candid conversation with a loan officer. Ask them what their credit, collateral, and equity requirements are for their business loans; be sure to explain your business in detail, as this can have a bearing on the requirements."
More on Small Business Loans
- How to Get a Small Business Loan
- The Canada Small Business Financing Program
- Where to Get a Small Business Loan When the Banks Turn You Down
Image (c) George Marks / Getty Images
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The people especially in today’s economic environment that are being frowned upon by banks that originate traditional small business loans. Now, banks will decline these small business owners, because in their eyes they believe that this small business owner is over leverage. They will decline for an example a restaurant night club in New York City that is a five million dollar of your business that processes three hundred thousand dollars a month in credit cards because in their eyes these small business owners is over leverage. Now a business cash lender who will look at the small business owner and say hey! The business owner has got a five million dollars of your business, his financial is hey it’s a little bit shaky, doing three hundred thousand dollars a month in credit cards, we’ll have an interview with the small business owners see where the small business owners direction is going and speak to their suppliers and say Hey, you know what, I think that this person has a good business, have been in business, you know the merchant may be in business for seven or eight years, they’ve been in business obviously their doing something right let’s get some money out to this small business owner. Now you compare that to the small business loan lenders who will look at and say Naah, Over leverage, don’t like the financials, were declining this application. Again business cash advance lenders are giving small business owners an opportunity to expand their business because they are giving them the influx of financing that is needed in order to expand the business.
Charles Baratta
We have some excellent tips videos for small business owners regarding the advantages of merchant business cash advance versus the traditional sba, or small business loan from the bank.