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Getting Ready for Your Loan

Tuesday, September 11, 2007

Wells Fargo Bank, http://www.wellsfargo.com

You’ve weathered the storm of initial financing and you’ve been up and running for a while. Now you can think more seriously about the next level: the real infusion of funds—$100,000 or more—you need to grow. It may be time to go to the bank to get a loan to build out your infrastructure or a line of credit to aid in cash-flow management.

So you know what you want, but what does the bank expect of you? “We ask exactly the question any company does in a transaction: Is this a good business decision?”, notes Jane Thomson, AVP, Wells Fargo Business Specialist. “We want to know that you have a track record of at least three years, that you’re established and profitable and that you have a demonstrated ability to pay your loan back.”

Get your ducks in a row

While different types of financing will require varying levels of documentation, most lending institutions will use some combination of the following types to ensure your viability as a loan candidate if you’re seeking $100,000 or more.

* Business profile—This describes the type of business, annual sales, number of employees, length of time in business and ownership.
* Loan request—Outlines how the loan funds will be used—it should include purpose, amount and type of loan.
* Collateral—A description of the collateral being offered to secure the loan, including equity in the business, borrowed funds and available cash.
* Business financial statements—Complete financial statements for the past three years and current interim financial statements.
* Personal financial statements—Statements of owners, partners, officers and stockholders owning 25% or more (or guarantors that add up to 51% or more) of the business.

The key components of the financial statement typically include:

* balance sheets from the last three fiscal year-ends;
* income statements covering your business profits or losses for the last three years;
* cash flow projections indicating how much cash you expect to generate to repay the loan;
* accounts receivable and “payable aging,” breaking your receivables and payables in to 30-, 60-, 90- and past 90-day categories; and
* personal financial statements from you and your business partners listing all personal assets, liabilities and monthly payments, as well as your business and personal tax returns for the past three years. “Financial statements are great—understanding your P&L helps—but no bank lends on projection,” Thomson adds.

“If your company is growing quickly, hire a certified bookkeeper or accountant, which can be a big help in putting the documentation together,” counsels Thomson. “And try to establish a relationship with your banker before you go for a loan. Conduct an informational interview to learn the process, help your banker understand what you’re looking for, what your goals are and how your business works. But don’t wait too long. The best time to apply for credit or for a loan is when you don’t need it.”


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