Having a Game Plan …. important or irrelevant when applying for a loan?

“By failing to prepare, you are preparing to fail.” Benjamin Franklin.

It can be reasonably projected that in order to have progress or success in the business world – a plan is vital! Whether it be an existing business starting a marketing campaign or offering a new product line, or an individual getting geared up to acquire a business, having a plan toward that same eventual goal is the incredibly important. Obtaining a loan is no different than any other aspect of the business world.

While many people have gone through the process of applying for a residential mortgage, there are far fewer who have successfully navigated the business/commercial lending approval process. Conceptually residential and commercial lending institutions have similar parameters tied to the 5 C’s of Credit – Character, Capacity, Capital, Conditions, and Collateral.

The divide toward commercial lending is related to the timeline to completion, approval process, and general microscope on each of the 5 C’s. Without going into detail on each of these factors, when preparing or approaching a financial institution for a commercial loan, the primary mechanism for a ‘quick answer’ is to gather pertinent information personal and business information to address these factors.

From a seasoned lender, there are a few helpful hints on what to gather and what to expect:

Print off multiple copies and scan to make it readily available for email correspondence. Especially if you plan on approaching more than one financial institution. Minimum Documentation:

Subject Business – Interim Period Financials (45 days)

• Income Statement.
• Balance Sheet.
• A/R and A/P Aging Schedule.
• Business Debt Schedule.
• Tax Returns – Past Three Years (SBA) and Two Years (Conventional).
• Brief written summary of ‘goal’ for funding.
• Projections and Business Plan – As needed.

ALL owners >20% of the Subject Business:

• Personal Financial Statement.
• Resume.
• Tax Returns – Past Three Years (SBA) and Two Years (Conventional).
• More documentation will be necessary when an owner has >20% ownership in another entity. At a minimum, gather all K-1’s for these companies.

While there will certainly be more documentation necessary to eventually finalize / gain an unconditional approval, having this information in hand when approaching a lender will expedite the review, and ultimately the approval process.