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Small Business Loans
What Lenders Look For When Considering Your Application

Once you submit your small business loans proposal to a lender, the lender will use it to help determine the following:

  • Your ability to repay small business loans:
    A small business loans lender wants to know how much cash flow your business can generate. The lender will look at your past / current financial statements to help determine how much cash flow your business generates, and if there is enough money left over after expenses to make payments on a small business loan. If you have been in business several years and consistently turn a profit, a small business loans lender is more likely to offer you financing. If you are an upstart or have little money left over after business expenses, you will have to present a compelling business case that will convince a small business loans lender to extend you credit.
  • Your credit history:
    A lender of small business loans will want to determine how likely you are to repay a loan. It will do so by examining your credit history. A small business loans lender will run a credit report on the owner/owners from one or more of the big three credit reporting agencies (TRW, Equifax, TransUnion). Having one or two isolated incidents on your report will not likely effect your chances of getting approved for small business loans. A lender will be looking for a pattern of how you handle your credit responsibilities. If you many incidents of making late payments, or have any judgements or bankruptcies on your record, it will make it more difficult for you to qualify for small business loans. If the adverse incidents were caused by uncontrollable events, such as a family death or illness (which can create hefty medical expenses), you will want to submit a letter of explanation to the small business loans lender. The lender may be forgiving of such instances if it feels that your credit problems were caused by hardship and not a lack of responsibility regarding credit obligations.
  • Your equity:
    A lender of small business loans will expect the owner / owners to have put some of their own money into the business. Many lenders will want to see you have 20% equity in the business. For example, if you want to borrow $100,000 for a small business loan, a lender will want the owner / owners to have put $20,000 of their own money into the business. If your business is consistently earning a profit and you are saving that money, those retained earnings can also be counted toward your equity in the business.
  • Your collateral:
    A small business loans lender will want to know what types of personal assets you have that could be sold to pay the loan (in the event you cannot repay the loan through your business operations). Lenders will often consider the following business and personal assets as adequate collateral for small business loans:
    House75% of its market value
    Truck & Heavy Equipment50% of its depreciated value
    Stocks & Bonds50%-90% of value
    Certificates of Deposit100% of value
    Furniture & Fixtures50% of its depreciated value
    Accounts Receivables50%-75% of receivables
    (under 90 days)
  • Your experience:
    Before lenders extend small business loans, they want to make sure that the owner has experience with the type of business they are conducting. It the owner has little or no experience (as a busines owner or as an employee with a similar company) in a particular type of business, they are not likely to offer a loan unless the owner intends on hiring managers with sufficient experience to run operations.

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