by Spectrum Business
With a solid business track record in place, you are ready to approach banks about providing capital support, namely securing credit. Having access to a business line of credit can help your business through the tough times, enabling you to meet payroll, purchase equipment or fund an expansion.
Receiving funding goes beyond your stellar track record. It’s important to understand that banks take several lending, risk and financial factors into consideration when you apply for a business loan. However, not all banks are the same — some specialize in business loans while others do not.
Bankers want to know that you are in a position to repay your loan. If you are, then you are less of a risk. Minimizing risk is what lending is all about. That also means a startup venture may have a slim chance of receiving a loan, while a more established business — especially one that has made a profit — can usually receive funding.
Consider that the longer you are in business, the more likely you will have a proven track record to show for it. Though making a profit is helpful, it isn’t necessarily a requirement for receiving a loan. The bank is more interested in your capacity to repay the loan, which is why your financial statements and other information will be closely scrutinized. Having a good business credit rating is helpful, too.
Bankers determine financial stability by looking at the amount of capital in a business, specifically the total capital from debt and equity. Low debt-to-asset and debt-to-worth ratios along with high current ratios can help your cause.
Lenders prefer borrowers with “skin in the game” or a personal stake in the loan process. Typically, this requirement is met when you put up collateral to reduce the risk of the loan. Collateral can be represented by equipment, your home or other assets you own. The larger the collateral you offer, the lower the risk for your bank.
You may find that a smaller bank will spend more time with you to find out about your small business and your aspirations. Small or large, all lenders will require the completion of extensive applications, receipt of financial statements and tax returns. It is a due diligence process that, when successfully accomplished, may provide the capital support your small business needs.
