Preparing a Loan Application

Obtaining a business loan has become more difficult as the economy, regulations, and lendig policies become more stringent.  I took the following notes during a recent staff training presentation and hope they will help you to understadn what lenders need to see in a business loan appllication. 

I. Understanding the Lender

It is much easier to find a business lender if you understand what a lender needs in order to process your loan application. I recommend starting with the lender you are already doing business with but check for the most recent bank policies and procedures. Government regulation and bank policies are frequently updated. To prepare you application it is helpful if you know the following:

Bank Policies –

Loan portfolio mix, number of and type of loans they like to make.

Loan Programs they use? (SBA or USDA programs?)

Loan requirements – Minimum Credit score, Loan to Value, Collateral, Equity, Lending Ratios -- Liquidity, Debt Coverage, others

Risk tolerance – some banks are more liberal, others more conservative.

Lender’s experience with customers in your industry?

Recent changes in the bank’s corporate structure that effect lending policies.

Banking regulations that affect the bank’s lending policies.

Average time to close a loan.

• Loan Underwriting – The lender will only know what you provide, incomplete applications get denied. Your loan officer will need to justify a loan approval based on due diligence review of you and your business. Information they are looking for includes:

Is the loan purpose consistent with the type of loan?

Credit Standing (score and credit report)

Cash Flow, is the business be profitable?

.... Are losses explained?

.... How were losses funded?

Collateral

.... Quality and value

.... Collateral value covers loan?

Equity/Net Worth

.... Has equity increased or decrease over last three years?

.... Amount of contributed equity and earned equity (retained earnings)

Financial ratios

.... Exceed lenders minimum target?

.... Ratio trends over last three years

Business condition – Strengths, Weaknesses, Issues

Other

.... Other business owned

.... Other sources of income

.... Personal Financial history

II. Preparing a loan package

Presenting the lender with a complete package is critical. Your package must demonstrate your capacity to manage the business, your capacity to produce stated outcomes, and the market place capacity to buy your service/product. Incomplete packages slow review and errors or misstated information will result in a denied application. Lenders will be examining:

1. Financial Statements – History

• Profit Loss Statements- YTD  Revenue, margins, profit

 • Cash Flow: EBITDA and Working Capital needs, Owner draws, distributions, When you spent cash, when you received cash

• Last three years of Tax records, Explain differences between tax records and Profit & Loss Statements. Explain any expenses made for tax purposes

• Balance Sheets – current liquidity, asset quality, leverage, capital structure, retained earnings, Aging of A/R and A/P

• Budget Projections with assumptions

• Break Even analysis

• Ratio analysis - Liquidity, leverage, performance over time has been consistent and is sustainable Sales to Assets, ROI, ROA, A/R Turnover, Average Collection period A/P turnover, average payment period Inventory Turnover, Inventory on hand

2. Management

Character of top management, resume of management experience, experience as management in this business/industry. Team depth, who does the tasks of CEO, CFO, A/R and A/P. Succession (who runs the business if you can’t be there?) Performance as compared to industry standards and trends

3. Business Plans

• Supports and explains how you will accomplish what you claim in your budget. How you meet the five C’s of credit. (Character, Capacity, Capital, Conditions, Collateral)

• Explains market opportunity

• Provides budget assumptions.

• Describe the business, how you make money

• Describe the service/product, provide pictures, marketing materials, samples

• Associated documents, Articles of Incorporation (Partnership), Leases, Contracts, firm estimates on major purchases, Collateral

III. Presentation Tips

• Be enthusiastic

• Be professional

• Be prepared

• Make an appointment, be early and ready

• Be organized and bring copies of all the document to leave with the lender

IV. Deal Breakers

Some issues in your history can be deal killers, there must be extenuating circumstances before a lender can consider proceeding with an application. Other problems could result in a loan application being considered as a higher risk. If a loan were to be approved, these issues could result in higher interest rates and more conditions and restrictions.

Preparing a quality loan application package will help identify potential deal breakers and provide you the opportunity to explain what happened and what you have done to correct the situation. Remember, it is safer for the lender to say no if there is any doubt or perception that your loan is a higher risk than the lender wants to accept.

Preparing a Loan Application

Obtaining a business loan has become more difficult as the economy, regulations, and lendig policies become more stringent.  I took the following notes during a recent staff training presentation and hope they will help you to understadn what lenders need to see in a business loan appllication. 

I. Understanding the Lender

It is much easier to find a business lender if you understand what a lender needs in order to process your loan application. I recommend starting with the lender you are already doing business with but check for the most recent bank policies and procedures. Government regulation and bank policies are frequently updated. To prepare you application it is helpful if you know the following:

Bank Policies –

Loan portfolio mix, number of and type of loans they like to make.

Loan Programs they use? (SBA or USDA programs?)

Loan requirements – Minimum Credit score, Loan to Value, Collateral, Equity, Lending Ratios -- Liquidity, Debt Coverage, others

Risk tolerance – some banks are more liberal, others more conservative.

Lender’s experience with customers in your industry?

Recent changes in the bank’s corporate structure that effect lending policies.

Banking regulations that affect the bank’s lending policies.

Average time to close a loan.

• Loan Underwriting – The lender will only know what you provide, incomplete applications get denied. Your loan officer will need to justify a loan approval based on due diligence review of you and your business. Information they are looking for includes:

Is the loan purpose consistent with the type of loan?

Credit Standing (score and credit report)

Cash Flow, is the business be profitable?

.... Are losses explained?

.... How were losses funded?

Collateral

.... Quality and value

.... Collateral value covers loan?

Equity/Net Worth

.... Has equity increased or decrease over last three years?

.... Amount of contributed equity and earned equity (retained earnings)

Financial ratios

.... Exceed lenders minimum target?

.... Ratio trends over last three years

Business condition – Strengths, Weaknesses, Issues

Other

.... Other business owned

.... Other sources of income

.... Personal Financial history

II. Preparing a loan package

Presenting the lender with a complete package is critical. Your package must demonstrate your capacity to manage the business, your capacity to produce stated outcomes, and the market place capacity to buy your service/product. Incomplete packages slow review and errors or misstated information will result in a denied application. Lenders will be examining:

1. Financial Statements – History

• Profit Loss Statements- YTD  Revenue, margins, profit

 • Cash Flow: EBITDA and Working Capital needs, Owner draws, distributions, When you spent cash, when you received cash

• Last three years of Tax records, Explain differences between tax records and Profit & Loss Statements. Explain any expenses made for tax purposes

• Balance Sheets – current liquidity, asset quality, leverage, capital structure, retained earnings, Aging of A/R and A/P

• Budget Projections with assumptions

• Break Even analysis

• Ratio analysis - Liquidity, leverage, performance over time has been consistent and is sustainable Sales to Assets, ROI, ROA, A/R Turnover, Average Collection period A/P turnover, average payment period Inventory Turnover, Inventory on hand

2. Management

Character of top management, resume of management experience, experience as management in this business/industry. Team depth, who does the tasks of CEO, CFO, A/R and A/P. Succession (who runs the business if you can’t be there?) Performance as compared to industry standards and trends

3. Business Plans

• Supports and explains how you will accomplish what you claim in your budget. How you meet the five C’s of credit. (Character, Capacity, Capital, Conditions, Collateral)

• Explains market opportunity

• Provides budget assumptions.

• Describe the business, how you make money

• Describe the service/product, provide pictures, marketing materials, samples

• Associated documents, Articles of Incorporation (Partnership), Leases, Contracts, firm estimates on major purchases, Collateral

III. Presentation Tips

• Be enthusiastic

• Be professional

• Be prepared

• Make an appointment, be early and ready

• Be organized and bring copies of all the document to leave with the lender

IV. Deal Breakers

Some issues in your history can be deal killers, there must be extenuating circumstances before a lender can consider proceeding with an application. Other problems could result in a loan application being considered as a higher risk. If a loan were to be approved, these issues could result in higher interest rates and more conditions and restrictions.

Preparing a quality loan application package will help identify potential deal breakers and provide you the opportunity to explain what happened and what you have done to correct the situation. Remember, it is safer for the lender to say no if there is any doubt or perception that your loan is a higher risk than the lender wants to accept.

Preparing a Loan Application

Obtaining a business loan has become more difficult as the economy, regulations, and lendig policies become more stringent.  I took the following notes during a recent staff training presentation and hope they will help you to understadn what lenders need to see in a business loan appllication. 

I. Understanding the Lender

It is much easier to find a business lender if you understand what a lender needs in order to process your loan application. I recommend starting with the lender you are already doing business with but check for the most recent bank policies and procedures. Government regulation and bank policies are frequently updated. To prepare you application it is helpful if you know the following:

Bank Policies –

Loan portfolio mix, number of and type of loans they like to make.

Loan Programs they use? (SBA or USDA programs?)

Loan requirements – Minimum Credit score, Loan to Value, Collateral, Equity, Lending Ratios -- Liquidity, Debt Coverage, others

Risk tolerance – some banks are more liberal, others more conservative.

Lender’s experience with customers in your industry?

Recent changes in the bank’s corporate structure that effect lending policies.

Banking regulations that affect the bank’s lending policies.

Average time to close a loan.

• Loan Underwriting – The lender will only know what you provide, incomplete applications get denied. Your loan officer will need to justify a loan approval based on due diligence review of you and your business. Information they are looking for includes:

Is the loan purpose consistent with the type of loan?

Credit Standing (score and credit report)

Cash Flow, is the business be profitable?

.... Are losses explained?

.... How were losses funded?

Collateral

.... Quality and value

.... Collateral value covers loan?

Equity/Net Worth

.... Has equity increased or decrease over last three years?

.... Amount of contributed equity and earned equity (retained earnings)

Financial ratios

.... Exceed lenders minimum target?

.... Ratio trends over last three years

Business condition – Strengths, Weaknesses, Issues

Other

.... Other business owned

.... Other sources of income

.... Personal Financial history

II. Preparing a loan package

Presenting the lender with a complete package is critical. Your package must demonstrate your capacity to manage the business, your capacity to produce stated outcomes, and the market place capacity to buy your service/product. Incomplete packages slow review and errors or misstated information will result in a denied application. Lenders will be examining:

1. Financial Statements – History

• Profit Loss Statements- YTD  Revenue, margins, profit

 • Cash Flow: EBITDA and Working Capital needs, Owner draws, distributions, When you spent cash, when you received cash

• Last three years of Tax records, Explain differences between tax records and Profit & Loss Statements. Explain any expenses made for tax purposes

• Balance Sheets – current liquidity, asset quality, leverage, capital structure, retained earnings, Aging of A/R and A/P

• Budget Projections with assumptions

• Break Even analysis

• Ratio analysis - Liquidity, leverage, performance over time has been consistent and is sustainable Sales to Assets, ROI, ROA, A/R Turnover, Average Collection period A/P turnover, average payment period Inventory Turnover, Inventory on hand

2. Management

Character of top management, resume of management experience, experience as management in this business/industry. Team depth, who does the tasks of CEO, CFO, A/R and A/P. Succession (who runs the business if you can’t be there?) Performance as compared to industry standards and trends

3. Business Plans

• Supports and explains how you will accomplish what you claim in your budget. How you meet the five C’s of credit. (Character, Capacity, Capital, Conditions, Collateral)

• Explains market opportunity

• Provides budget assumptions.

• Describe the business, how you make money

• Describe the service/product, provide pictures, marketing materials, samples

• Associated documents, Articles of Incorporation (Partnership), Leases, Contracts, firm estimates on major purchases, Collateral

III. Presentation Tips

• Be enthusiastic

• Be professional

• Be prepared

• Make an appointment, be early and ready

• Be organized and bring copies of all the document to leave with the lender

IV. Deal Breakers

Some issues in your history can be deal killers, there must be extenuating circumstances before a lender can consider proceeding with an application. Other problems could result in a loan application being considered as a higher risk. If a loan were to be approved, these issues could result in higher interest rates and more conditions and restrictions.

Preparing a quality loan application package will help identify potential deal breakers and provide you the opportunity to explain what happened and what you have done to correct the situation. Remember, it is safer for the lender to say no if there is any doubt or perception that your loan is a higher risk than the lender wants to accept.

Typical Requirements For Business Loans

Seeking a business loan requires preparation and excellent documentation of your businesses financial health. The following list will help get you started, complete and accurate information will help the lender complete their review with a better chance of reaching approval. Pay close attention to financial projections and cash flow needs, they must be believable and supported by your business plan market assumptions


Proof read your documents as errors will delay review and possible cause rejection. Have someone else review you documents did they clearly understand what you wrote?


I. Cover Letter --States who you are, how much money is needed, what the money will purchase and what results are expected.

II. Business Plan
A. Description of the business
B. History and nature of business
C. Ownership structure. Attach contracts or organizing charter, copies of business licenses, EIN, Resolution/Articles of Incorporation or partnership contracts.
D. Key Management resumes
E. Description of product/service and market place. Including competition, market area, major customers, major suppliers, description of plant and equipment
F. Amount of loan requested. Specific dollar amount and purpose of loan, use and benefits, amount of owner’s contribution, primary source of repayment and repayment terms, list of collateral.

III. Business Financial Reports
A. Projected cash flow budget, income statement, balance sheet, financial assumptions
B. Business financial history for last three years
C. Tax returns for last three years
D. Itemization of all debts
E. Current aging of accounts receivable

IV. Personal Financial Statements (for each co-owner)
A. Recent personal financial statements, recent
B. Personal Tax returns for last three years

V. Attachments
A. Application forms.
B. Business incorporation documents, partnership agreements, buy/sell agreements, etc.
C. Legal documents: leases, contracts, franchise agreements,
D. Detailed lists of assets to be purchased
E. Summary of market research
F. Supporting documentation, pictures, plans, contractor estimates, customer contracts.


NOTE: Loan Decisions Points – Lenders have several critical decisions points. The information you provide must prove to a lender your ability to accomplish your business goals.  A lender review will include but is not limited to:

• Evidence of your ability to achieve the cash flow budget
• Total amount existing debt and how much more debt will be added with a new loan
• Ability to pay all of your debts and still be profitable
• Personal and business credit history
• Amount you are investing as the owner
• Amount of collateral
• Potential risk of business failure
• New business vs. well established business

Typical Requirements For Business Loans

Seeking a business loan requires preparation and excellent documentation of your businesses financial health. The following list will help get you started, complete and accurate information will help the lender complete their review with a better chance of reaching approval. Pay close attention to financial projections and cash flow needs, they must be believable and supported by your business plan market assumptions


Proof read your documents as errors will delay review and possible cause rejection. Have someone else review you documents did they clearly understand what you wrote?


I. Cover Letter --States who you are, how much money is needed, what the money will purchase and what results are expected.

II. Business Plan
A. Description of the business
B. History and nature of business
C. Ownership structure. Attach contracts or organizing charter, copies of business licenses, EIN, Resolution/Articles of Incorporation or partnership contracts.
D. Key Management resumes
E. Description of product/service and market place. Including competition, market area, major customers, major suppliers, description of plant and equipment
F. Amount of loan requested. Specific dollar amount and purpose of loan, use and benefits, amount of owner’s contribution, primary source of repayment and repayment terms, list of collateral.

III. Business Financial Reports
A. Projected cash flow budget, income statement, balance sheet, financial assumptions
B. Business financial history for last three years
C. Tax returns for last three years
D. Itemization of all debts
E. Current aging of accounts receivable

IV. Personal Financial Statements (for each co-owner)
A. Recent personal financial statements, recent
B. Personal Tax returns for last three years

V. Attachments
A. Application forms.
B. Business incorporation documents, partnership agreements, buy/sell agreements, etc.
C. Legal documents: leases, contracts, franchise agreements,
D. Detailed lists of assets to be purchased
E. Summary of market research
F. Supporting documentation, pictures, plans, contractor estimates, customer contracts.


NOTE: Loan Decisions Points – Lenders have several critical decisions points. The information you provide must prove to a lender your ability to accomplish your business goals.  A lender review will include but is not limited to:

• Evidence of your ability to achieve the cash flow budget
• Total amount existing debt and how much more debt will be added with a new loan
• Ability to pay all of your debts and still be profitable
• Personal and business credit history
• Amount you are investing as the owner
• Amount of collateral
• Potential risk of business failure
• New business vs. well established business

Typical Requirements For Business Loans

Seeking a business loan requires preparation and excellent documentation of your businesses financial health. The following list will help get you started, complete and accurate information will help the lender complete their review with a better chance of reaching approval. Pay close attention to financial projections and cash flow needs, they must be believable and supported by your business plan market assumptions


Proof read your documents as errors will delay review and possible cause rejection. Have someone else review you documents did they clearly understand what you wrote?


I. Cover Letter --States who you are, how much money is needed, what the money will purchase and what results are expected.

II. Business Plan
A. Description of the business
B. History and nature of business
C. Ownership structure. Attach contracts or organizing charter, copies of business licenses, EIN, Resolution/Articles of Incorporation or partnership contracts.
D. Key Management resumes
E. Description of product/service and market place. Including competition, market area, major customers, major suppliers, description of plant and equipment
F. Amount of loan requested. Specific dollar amount and purpose of loan, use and benefits, amount of owner’s contribution, primary source of repayment and repayment terms, list of collateral.

III. Business Financial Reports
A. Projected cash flow budget, income statement, balance sheet, financial assumptions
B. Business financial history for last three years
C. Tax returns for last three years
D. Itemization of all debts
E. Current aging of accounts receivable

IV. Personal Financial Statements (for each co-owner)
A. Recent personal financial statements, recent
B. Personal Tax returns for last three years

V. Attachments
A. Application forms.
B. Business incorporation documents, partnership agreements, buy/sell agreements, etc.
C. Legal documents: leases, contracts, franchise agreements,
D. Detailed lists of assets to be purchased
E. Summary of market research
F. Supporting documentation, pictures, plans, contractor estimates, customer contracts.


NOTE: Loan Decisions Points – Lenders have several critical decisions points. The information you provide must prove to a lender your ability to accomplish your business goals.  A lender review will include but is not limited to:

• Evidence of your ability to achieve the cash flow budget
• Total amount existing debt and how much more debt will be added with a new loan
• Ability to pay all of your debts and still be profitable
• Personal and business credit history
• Amount you are investing as the owner
• Amount of collateral
• Potential risk of business failure
• New business vs. well established business

Social Media Marketing Strategy

Recently read "The New Conversation: Taking Social Media from Talk to Action" anHarvard Business Review Analitic Serviceds Report regarding Social Media strategies. Follow the link to read the full text http://www.sas.com/resources/whitepaper/wp_23348.pdf


Executive Summary
The exponential growth of social media, from blogs, Facebook and Twitter to LinkedIn and YouTube, offers organizations the chance to join a conversation with millions of customers around the globe every day. This promise is why nearly two-thirds of the 2,100 companies who participated in a recent survey by Harvard Business Review Analytic Services said they are either currently using social media channels or have social media plans in the works. But many still say social media is an experiment, as they try to understand how to best use the different channels, gauge their effectiveness, and integrate social media into their strategy.
Despite the vast potential social media brings, many companies seem focused on social media activity primarily as a one-way promotional channel, and have yet to capitalize on the ability to not only listen to, but analyze, consumer conversations and turn the information into insights that impact the bottom line.

For instance:

• Three-quarters (75%) of the companies in the survey said they did not know where their most valuable customers were talking about them. 
• Nearly one-third (31%) do not measure effectiveness of social media.
• Less than one-quarter (23%) are using social media analytic tools. 
• A fraction (7%) of participating companies are able to integrate social media into their marketing activities.

While still searching for best practice and measurements, two-thirds of the companies surveyed are convinced their use of social media will grow, and many anticipate investing more in it next year, even as spending in traditional media declines.

Only a small group — 12 percent — of the companies in the survey said they felt they were currently effective users of social media. These were the companies most likely to deploy multiple channels, use metrics, have a strategy for social media use, and integrate their social media into their overall marketing operations.

Clearly, most companies are still searching for the best practices and metrics so they can understand where to invest and target their social media activities and build their own competitive advantage. It will take those new tools and strategies to create what Avinash Kaushik, Google’s Analytics Evangelist, describes as a new reality in harnessing the power of social media. “Too many companies have not evolved from what I call ‘shout marketing’ — think TV, newspapers, magazine ads — to influence by initiating and participating in conversations with consumers,” he said. “There needs to be a generational shift.”