How to Get a Business Loan Approved: Advice from 22 Small Business Finance Experts

Written by on July 22, 2014 in Finance And Lending - 1 Comment
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Thanks to the internet, web apps, and various methods of business automation that now exist, starting a new business today is undoubtedly much easier than it was even just a decade ago. But unless you are a lean technology startup that is built either wholly or mostly on the web, there are some time-old growth challenges that are unavoidable for new and growing businesses, one of which is building capital. For many businesses, building capital inevitably means successfully obtaining a business loan.

As a company that works closely with businesses as they build capital, we at Direct Capital wanted to learn some helpful expert tips on the business loan approval process, and specifically, how small, growing companies who are in need of capital can meaningfully improve their chances of getting their business loan approved. To do that, we asked 22 small business & finance experts the following question:

“What’s the #1 way to improve your chances of getting a business loan approved?”

We’ve collected and compiled their expert advice into this comprehensive guide to help business owners in need of capital have a better chance of obtaining the business loan they need to grow. See what our experts said below:

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Meet Our Panel of Small Business Finance Experts:

 

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Tony Rose

Tony Rose

Tony is a Founding Partner of Rose, Snyder & Jacobs. At his firm, his client responsibilities include tax and management consulting advice to closely-held corporations, family owned businesses, partnerships and the high net worth individuals that own them. Tony has spent considerable time resolving the complexities faced by families of wealth. Through counseling and leading multidisciplinary teams of professionals, he has provided valuable guidance at the point where life intersects wealth.

The # 1 way to increase your chances of getting your business loan approved is by…

Presenting clear and accurate financial records.

Many small businesses fail to invest the time or money into creating credible financial information. They produce income statements and balance sheets that don’t make sense. In my view, there is nothing like showing a financial institution a readable and comprehensible set of historical financial records.

Also, small businesses often fail to articulate a thoughtful plan for the future. Wanting financing is one thing. Articulating how that money will be spent, what the positive results will be to that spending and how the financing will be paid back in a credible manner is the whole ball game.


David Ragland

David RaglandDavid Ragland is Chief Executive Officer of IRC Wealth, a private asset management company based in Atlanta. Holding both a BBA and a Master’s degree in Accounting from the University of Georgia, David began his career in the tax division of Ernst & Young. He then served as CFO for several companies, gaining experience in taking companies public and propelling them on to the INC 500 List of Fastest Growing Companies.

The # 1 way to increase your chances of getting your business loan approved, and the #1 thing bank underwriters are looking for, is…

3 years worth of documentation (i.e. tax returns) demonstrating that the Company has both the cash flow to repay the loan AND sufficient collateral (i.e. accounts receivable, inventory or hard assets) to secure the loan in the event the company ends up not having the cash to repay it.


Steven M. Packer

Steven M PackerSteven M. Packer has over 25 years of experience in accounting and auditing, federal, and state and local income taxation. Currently at Duane Morris, he devotes his practice to tax and accounting compliance and review, and litigation consulting. Prior to joining Duane Morris, he was a manager with both a large regional and international CPA firm, and served as chief financial officer for an international retail and distribution company.

The #1 way to improve your chances of receiving approval on a business loan application is to…

Present credible financial statements with a positive forward looking outlook, meaning no “going concern” issues.

Credible financial statements begin with an effective system of internal accounting controls within the company, supported by committed management and a competent and accurate system of financial reporting and bookkeeping. There are many software programs available depending on the type of industry, which work quite well. It is also advisable to have a competent financial professional on the management team to ensure appropriate levels of financial reporting and that controls are operating effectively and as designed. If a competent financial professional is not available, consult with an outside, independent, CPA, who may recommend a formal process to provide assurance that the financial statements are free of material error.

Most banks today are satisfied with either complied or reviewed financial statements, with which a CPA is associated. If engaging an outside CPA, be sure to either engage through recommendation or obtain and check references. Do not make the mistake, which many small business often make, of using a non-financial professional to handle the financial aspects of the business, as those without the minimum levels of training and experience may cause more harm than good.


Daniel Feiman

Daniel FeimanDaniel Feiman, MBA, CMC® is the Founder and Managing Director of Build It Backwards,a consulting & training firm based in Redondo Beach, CA. He consults in three areas: Strategy: Planning & Implementation; Finance: Modeling & Analysis; Process: Lean & Continuous Process Improvement. Since Daniel left commercial banking (18+ years) to set up Build It Backwards (18 years & counting), he has transformed ordinary companies into extraordinary ones by Turning Roadblocks into Roadmaps(SM). He has also facilitated training programs globally on these subjects to thousands of attendees with excellent evaluations.

The #1 way to improve your chances of getting a business loan approved is to…

Make the lender’s/underwriter’s job easy by providing them everything they need to say “yes” to your request. This includes:

  • Borrower (individual or business)
  • Amount
  • Purpose
  • Collateral
  • Primary
  • Secondary
  • Tertiary
  • Tangible
  • Intangible
  • Financial statements (3 years)
  • Business
  • Personal
  • Tax returns (3 years)
  • Business
  • Personal
  • Rate (you want)
  • Fixed
  • Floating
  • What index
  • Margin
  • Term (how long)
  • Repayment schedule (proposed)
  • Monthly
  • Quarterly
  • Annually
  • Interest only
  • Fully amortized
  • Guarantors
  • Anything else critical to satisfying the lender’s concern about your ability & willingness to repay the loan


Marc Diana

Marc DianaMarc Diana is the founder and CEO of personal finance community MoneyTips.com, Chairman and CEO of LeadPoint, Inc., and managing partner of Estalea. At Estalea, he founded several successful companies including Savings.com and SimplyFinance.co.uk. Previously, he was a founding member of LowerMyBills.com where he built its mortgage business.

The #1 way to improve your chances of getting a business loan approved is to…

Be prepared to answer all questions, including “why” you want the loan.

Before you approach any financial institution for a business loan, there are several key documents you should develop and questions you should be prepared to answer. These must demonstrate who, what, when, where, how and why an institution would be making a sound investment by loaning money to your business.

Perhaps the most important this to answer is the why. Why are you approaching a specific institution and why should that institution invest in you? Why should the lending institution pick your business over several others in the same industry and/or geographic area? Aside from the numbers, the answer to this question should reveal your passion for what you do and your determination to do whatever it takes to make your business thrive.


Artie Berne

Artie BerneArtie Berne is Owner of ArTex Funding, an Asset Base Funding Company that helps corporations having cash flow – working capital issues, and companies that have difficulty qualifying for conventional bank funding. ArTex focuses on using one single collateral corporate asset: Inventory, Existing Equipment, Purchase Orders, Invoices, Contracts or Corporate owned Real Estate to get these companies funded.

The #1 way to get a loan approved is to…

Have a good comprehensive loan package prepared.

You need to prove all your income and expenses you have in the corporation or the real estate project.

These days’ banks and alternative funding groups want to see information. Lots of information. These institutions went from “Can you fog a mirror” – “Your Approved”
To “Please include a pint of your blood with your loan package” So they want to see a full complete financial package.

In this financial package we have our clients state all their problems – issues right up front, how they’re going to mitigate those problems and how you’re going to solve those problems. We make sure customers bring out the issues first and not hide them. By bringing out the issues- problems first and presenting them to the loan committee you really gain a lot of creditability with the funding institution.

This is what a full loan package looks like these days.

1) Signed and Completed Business Loan Application
2) Signed and Completed Personal Financial Statement on all principals who own 20% or more of the company.
3) Personal Cash Flow Statement on all Guarantors
4) Proof of liquidity (most recent month end bank and/or brokerage statements – personal and/or business) – proof of down payment
5) Last 3 Years (’11, `12 & ‘13) Personal Tax Returns on all principals (all schedules)
6) Last 3 Year End (’11, `12 & ‘13) Financial Statements (Balance Sheets, Income and Cash Flow Statements)
7) Interim 2014 Financial Statements (Balance Sheet, Income and Cash Flow Statements)
8) Completed Real Estate Investment Worksheet (attached)
9) Copy of most recent appraisal on property
10) Copy of most recent survey on the property
11) Background information on you and your partners/major contributors and their experience/Resumes
12) If a Non Profit Corporation – Proof of Non-Profit Status
13) Copy of Articles of Incorporation
14) Certificate of Incorporation
15) Copy of Corp By Laws
16) Copies of construction budgets – if applicable
17) Copy of valid Driver’s License(s), ID, or Passport
18) Copy of Purchase Contract/Agreement
19) Business Plan and exit strategy on the project
20) Signed and Completed Credit Authorization (attached)
21) Title Company Contact Information
22) Copy of Insurance for the property(s)
23) Copies of any Leases
24) Copies of the Utility Bills

This full package really is the #1 way to get a loan approved.


Gary Lee

 

Gary Lee is the Technical Director of Gary LeeYourCityOffice.com, London’s premier virtual office service, and has worked in the web industry since 1997.

We deal with thousands of startups and the one thing that all banks and small business advisor’s fail to inform their clients regarding their business loan is…

They should look at opening a Virtual Office, so many of them have no idea what a Virtual Office even is.

Office space is often the largest overhead for many companies starting out, you can have an office on Madison Avenue in NY for under $50 a month! Not to mention saving staff costs on services like call handling.

The cost of the loan is dramatically reduced, you show an ability to save money and be responsible that will reflect well on all other aspects of your business dealings and allow you to invest that money on marketing and other aspects that will help your business succeed and pay back that loan much faster. We have heard some great success stories from our clients.


Anthony Alfidi

Anthony AlfidiAnthony Alfidi is the CEO of Alfidi Capital, a free resource to educate, enlighten, and entertain the investing public.

The #1 way to improve your chances of getting a business loan approved is to…

Meet the bank’s income requirements.

All credit decisions analyze a borrower’s credit history, assets on hand, and cash flow along with other less quantifiable factors for character and creditworthiness. The income requirement is a very good predictor of ability to pay. Banks like to see at least two or three years of verifiable income that is sufficient to meet the projected monthly loan payments.


Abhishek Shankar

Abhishek ShankarAbhishek Shankar is the CEO of Adstuck.com, and is also Serial entrepreneur and Angel Investor of companies such as Adstuck.com, fityour.com, angel.io, mojotheapp.com. He is an IIT grad with years of investing experience, and who has himself applied and disbursed loans in the startup context.

From my personal experience I can say that the #1 way to improve your chances of getting a business loan approved is to…

Have a good record and maintain it.

You need a good account history with any organization that has given you credit, from phone companies to furniture shops. IF you have some good collaterals it again is very handy in getting finances on behalf of that Document ready is also very important.

Since obtaining a business loan is an institutional and transactional activity, one has to be absolutely perfect with the docs, which are mandatory. Tax returns, bank statements etc
Great Business Projections/Plans: Good plans always have takers. If the person who is disbursing the finance is convinced then he will let it go through easily. Finally, this is a perception of risk reward for the disbursement team.


David Reischer

David ReischerDavid Reischer is the Chief Financial Officer for Legal Marketing Pages Corp. David has a background in corporate finance, commercial lending and small business and entrepreneurship.

The # 1 way to get your business loan approved is to…

Be able to show the underwriter your business forecasts.

All too often, when underwriters review the documents submitted by a small business owner there is no clarity on the future revenue of a company. It is understandable that it
is difficult to predict the future revenue when the business may not have started but it is always a good idea to provide an Excel spreadsheet that forecasts at least 2 years forward. It is especially valuable if the small business owner has prior experience in the industry. This will lend credence to the forecast provided by the loan applicant.


Jim Angleton

Jim AngletonJim Angleton is the President for AegisFS. Him has led a 28-year career as a banker and consultant to banks, representing companies and businesses of all types obtain commercial loans.

The # 1 way to increase your chances of getting your business loan approved is by…

Creating a mutually appropriate loan covenant with the bank by offering a “Lock Box”.

Essentially you will pledge the cash flows to your institution in a Bank Account whereby each month until the loan payment is paid, you agree not to disturb the collection of daily cash flows. The bank agrees to fund your loan and in return may collect monthly the repayment amount.

Borrower Lock Box consent also is a reward for favorable terms, conditions and interest rate. For the Bank, this act of good faith further demonstrates best practice underwriting and loan security. An alternative to Lock Box would be to create a 6 month loan repayment Loan Repayment Account. Borrower creates a bank account having equivalence to six months worth of loan repayment and authorization allowing Bank to direct debit this escrow account for timely loan repayment.


Michelle Dunn

Michelle DunnMichelle Dunn is an award winning author, entrepreneur, consultant and expert on credit and debt collection. Michelle has worked in this industry for 27 years, started and ran her own collection agency and has written many books on the subject. Learn more about Michelle’s work at www.michelledunn.com.

My #1 way a business or small business owner can improve their chances of getting a business loan approved is to…

Show up to apply for the loan with your business plan, your marketing plan and your credit plan or policy.

Including your credit plan or policy shows the bank you are serious about getting paid (which then enables you to pay them), how you want our customers to pay you, what will happen if they don’t and how you decide who to extend credit to. If you show them how you will get the money to pay them – that increases your chances of being approved for the loan.

Your marketing plan does the same thing, it lets the lender know how you will grow your business, gain new clients and make more money – all so that you can pay them back.


Nev Kraguljevic

Nev KraguljevicNev Kraguljevic is the Founder of Diversity for Business, and is a serial entrepreneur, educator, and investor who works with businesses, business owners, and professionals looking to improve their inner and outer game in business and finance. For more information about Nev’s work visit his website at http://www.nevkraguljevic.com/.

In my experience, the absolute best way to ensure you get your business loan approved is to …

Have real estate owned by the business that has equity built into it in addition to the business cash flow.

With that, you can obtain a line of credit very easily, especially if you are looking for a loan that is 60% loan to value or less.

The reason why this is so important is because most banks will want the business to be a separate entity (corporation or LLC) and they will look for financial documents (history of doing business) for the minimum of the past 3 years. They will ask for the most current statements to ensure your business is a safe entity to loan to.

Some of the business do not own (nor do they wish to own) real estate, which is fine. For those businesses, the best way to ensure you are approved for a loan is to have your financial reports in order (income statement, balance sheet, and cash flow). What the banker wants to ensure is that your business has a solid way of repaying to loan, which means they will be looking at your cash flow first. Does your business have a positive cash flow? Does that cash flow depend on you to work every day in order to be generated or do you have staff (employees or succession plan) that will work and help with cash flow creation without you having to work?


Rohit Arora

Rohit AroraAccording to Rohit Arora, CEO and co-founder of Biz2Credit, one of the country’s leading experts in small business finance, having a business plan is essential to getting a small business loan. extensive experience in financial services and the issues facing startups and growing small businesses across the globe. In 2011, he was named New York City’s “Top Entrepreneur” by Crain’s New York Business and he is one of the most frequently quoted small business finance experts in the media, including The Wall St. Journal, NY Times, Bloomberg, Reuters,
Inc., etc.

To increase their changes of being successful, anyone looking to secure a small business loan should have…

A detailed, succinct business plan.

The document provides a detailed explanation of what the business is and where the owner hopes to take it. The business plan should include:

1. Executive Summary: A one-page explanation of the business, its goals, operations, marketing efforts, and revenue model is very important. In fact, it may be the only portion of the business plan that a loan officer will bother to read, so be sure that it is succinct.

2. Business Description: What does the company do? How will it make a profit?

3. Local Market and Competitive Landscape: Describe where the business will be based and who the target audience will be. Assess the competition as objectively as possible and then describe how you plan to differentiate your business.

4. Product or Service: Explain how your product or service works. Highlight what makes your business one that will attract customers.

5. Sales, Marketing and Promotion: Outline how you will inform the marketplace about your company and build awareness. Describe the marketing tools you will use, including a web site, advertising, public relations (traditional and social media), trade shows, sampling, sales promotions, etc.

6. Management Team: Describe who will run the business and their experience level(s).

7. Financial Data: Provide a break-even analysis, cash flow projection, sample balance sheet and profit-and-loss statements.

8. Investment Information: Lenders want to know how much money the owners are putting into the company. If you are unwilling to invest much of your own money into it, investors will be wary about doing so. Provide an estimate of sales, revenues, and what type of return investors can expect.

9. Appendices: Any research you have conducted, charts, graphs, logos, and other images.


William A. Price

William A. PriceWilliam A. Price is a Warrenville, Illinois-based business lawyer with an international practice focused on mergers, acquisitions, and recapitalization. Learn more about William’s work at www.growthlaw.com.

The # 1 way to increase your chances of getting your business loan approved is by…

Knowing and being sufficiently prepared for both the tangible and intangible things the bank will want to see from you.

More specifically, banks look at:

1. Character — mostly credit score above 680, which shows you repaid other financial obligations. Credit repair services or guarantors can address this issue if you have a bad track record.

2. Collateral — what do you have or does your target purchase make available that could be sold or otherwise readily turned into cash if you can’t pay the loan? Resolving accounts payable into cash, structuring a deal to include readily valued and resalable items, and/or getting guarantors or partners with collateral can address this issue if there is a problem.

3. Cash flow — net cash flow from a deal of 125% or more of amounts needed to pay off the proposed loan is usually essential. If you have documented fast growth and even higher net returns than 125% of monthly loan payments, that might allow the bank to consider an “air ball” (loan not fully collateralized).

4. Sources and Uses of Funds — The bank wants you to make a healthy down payment (as low as 10% if an SBA 504 loan is at issue, otherwise usually 25% plus of what is financed. They also need to see you know how to put their money to work to make a profit so the loan can be paid off promptly.


Maureen O’Connell

Maureen OconnellMaureen O’Connell is the Executive Vice President and Chief Financial Officer of Scholastic Corporation. At Scholastic, she oversees all the administrative functions which include Strategic Planning & Business Development, Global Operations & IT, Finance and Human Resources. Learn more about Maureen’s work at maureeneoconnell.com.

The # 1 way to increase your chances of getting your business loan approved is by…

Doing the following three things, and doing them well:

1. Perform thorough research before applying for the loan

Choose a bank that is familiar with your industry and its target market. I would suggest that choose smaller community banks in your own area rather than national banks because the process is much quicker and since you operate in the same locality, the chances of approval are higher.

2. Have all the documentation in place

The last thing that you want when applying for a loan is to not have the proper documentations. Get complete information from the bank on the documentations that would be required before you apply for the loan.

3. Crack The Interview with confidence

A bank when it provides you loan wants you to instill in them the confidence that you would be able to repay them. Communicate clearly as to the amount of money you require, how you would be using it and how you intend to repay the bank. Be prepared for some volleys and keep a professional, polite demeanor.


Dan Levin

Dan LevinDan Levin is the President of the CPR Radio Show in Dallas, TX. Outside of and prior to his successful radio career, Dan also has over 35 years of experience in the financial industry as a consultant and finance expert.

The #1 way to improve your chances of getting a business loan approved is to…

Show a clean history of timely payments.

One thing that helps is to have monthly bills deducted from your bank account to avoid making late payments. Paying business bills on time will improve the credit standing of the business.


Ted Clark

Ted ClarkTed Clark is the Executive Professor for Entrepreneurship and Innovation at the D’Amore-McKim School of Business at Northeastern University.

The #1 way to improve your chances of getting a business loan approved is to…

Have a solid, well-developed and compelling business plan. Nothing beats a well-developed business plan to validate a business opportunity and acquire financing.

A well written business plan provides the lender with a level of confidence that you know what you are doing with the business, that you have a clear path to profitability, and that the business has the ability to service the loan.

The key to writing a compelling business plan is that you address the reader’s needs. One of the first things a lender will want to know is how much money you need. You need to show the lender that you are aware of your financial needs.

In addition to providing the amount that you need, you should also provide the lender with specifics regarding how you plan to use the money. Your business plan should also provide the lender with insight as to timing of when you will need the financing and for how long. Show the lender that you have a clear vision as to what you are going to do with the money.

A major objective of your business plan is to create confidence in the lender that you know what you are doing and that that you will be able to pay them back. To do this, explain to the lender what the business does and how it will be profitable and generate sufficient cash flow to service the loan. In other words show the lender how the business makes money.

When you provide a well-written business plan that shows a clear path to profitability, and that the business will be able to service the loan you will be on your way to acquiring financing.


Kevin Hoult

Kevin HoultKevin Hoult is a Certified Business Adviser and has served as an SBA Small Business Development Center (SBDC) adviser since 2006, in the Washington State communities of Bellingham, Renton and Mount Vernon, helping local businesses overcome roadblocks and discover opportunities. Kevin earned an MBA in 2001, building on his experience in the retail, service and software industries. Learn more about Kevin’s work at kevinhoultmba.blogspot.com
In my experience, the number one way to get a banker to listen to your needs as you apply for a business loan is to…

Show an *uncommon knowledge* of your business operations.

In lender meetings I have attended, the owner who can speak eloquently about every dimension of the business operations is the owner who moves to the next level in loan consideration.

Do you understand, and can you explain in painful detail, the sources of your costs of goods or services sold? Can you name your most profitable sales, your differential advantages and your critical market segments? Do you know your competitors intimately? Can you describe your daily sales numbers and why they fluctuate?

Thinking about applying for financing, a lease option or a line of credit? Then sit down with your bookkeeper, your top salesperson, your operations assistant and your other sources of business expertise and study your business inside and out.


Evan Hutchinson

Evan HutchinsonEvan Hutchinson is the Principal and Owner of Hutchinson Group, LLC, and is business consultant working with clients worldwide. Evan works with both small and large organizations with the understanding of shared responsibility to improve ROI. Combining trusting client relationships with frank and honest advice, Evan helps his clients improve their overall position, not only to improve profit, but rather to improve overall organizational health.

The absolute best way to get a business loan approved is to…

Have a least a couple years history of revenue and a good history in your draft accounts with your bank (i.e. no frequent overdrafts or bounced checks).

Many small business loans have to be personally guaranteed, so the better FICO score the better your chances of approval, however this is not a deal breaker. Many lenders will still lend to business with personal FICOS as low as the upper 500s. It’s also a good idea to have a DUNS number for your business, even if you don’t have any business credit.

Banks will also look at the overall registration of your business. If you’re simply a sole-proprietor with a side business and no separate TIN, your chances of getting a business loan are quite a bit lower than if you are a LLC / corporation with a TIN and employees.

You will also want to have an established relationship with your local bank that you want to borrow through. Lending officers have a harder time saying “NO” to someone they know personally and whose business they are familiar with. All rules have exceptions; so developing a good relationship with a bank is key.


Martin Luenendonk

Martin LuenendonkMartin Luenendonk, with his business partner Anastasia, is the Co-Founder of Entrepreneurial-insights.com, a site providing practical in-depth business articles that helps new business owners build successful companies. Prior to founding Entrepreneurial Insights, Martin and Anastasia founded Finance Club, after which they grew to currently more than 420,000 members worldwide that helped them boost their careers, network, and ability exchange knowledge.

The #1 way to improve your chances of getting a business loan approved is to…

Having securable assets.

Your chances of getting a startup loan are higher if your business model uses securable assets such as inventory in E-Commerce startups or are generating positive operating cash flow. Focus on that early on.


David Bakke

David BakkeDavid Bakke is a Financial Expert at MoneyCrashers.com, an online resource for all things money – including budgeting, taxes, credit cards, frugal shopping, retirement, and more.

The #1 way to improve your chances of getting a business loan approved is to…

Manage your cash flow effectively and be able to show it to your bank.

This can be a challenge for small businesses (especially newer ones) but if you offer discounts for early payments, limit access to petty cash accounts, and follow up with late paying customers, the goal can be reached. Banks take a serious look at cash flow when determining the risk of extending a loan to a new small business, so make this your priority.

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