If you have not been able to save enough money to start or grow your business, you may need external funding to achieve this.
Your bank may be an option of funding. But you must be ready to meet the following requirements:
Collateral
Your business has to have hard assets it can pledge to back up a business loan. Banks look very carefully at these assets to make sure they reduce the risk.
If the borrower is unable to present a collateral, he may not be able to get the loan.
Business plan
The vast majority of commercial loan applications require a business plan document. Nowadays, it can be short, perhaps even a lean business plan but banks still want that standard summary of company, product, market, team, and financials.
All of your business’s financial details
They include all current and past loans and debts incurred, all bank accounts, investment accounts, credit card accounts, and of course, supporting information including tax ID numbers, addresses, and complete contact information.
Complete financial statements, preferably audited
The balance sheet has to list all your business assets, liabilities and capital, and the latest balance sheet is the most important.
Your profit and loss statements should normally go back at least three years, but exceptions can be made, occasionally, if you don’t have enough history.
All of your personal financial details
They include social security numbers, net worth, details on assets and liabilities such as your home, vehicles, investment accounts, credit card accounts, auto loans and mortgages.
For businesses with multiple owners, or partnerships, the bank will want financial statements from all of the owners who have significant shares.
Expect to sign a personal guarantee as part of the loan process.
Insurance information
Since it’s all about reducing the risks, banks will often ask newer businesses that depend on the key founders to take out insurance against the deaths of one or more of the founders. And the fine print can direct the payout on death to go to the bank first, to pay off the loan.
Copies of past returns
This is to prevent multiple sets of books and again, banks want to see the corporate tax returns.
Agreement on future ratios
Most commercial loans include what is called loan covenants, in which the company agrees to keep some key ratios—quick ratio, current ratio, debt to equity, for example—within certain defined limits. If your financials fall below those specific levels in the future, then you are technically in default of the loan.
