Whether it's for startup costs or capital expansion, eventually most businesses need to borrow money. Being prepared and understanding the requirements can increase your chances of getting a loan and making the process easier.
Consider your alternatives – Before applying for a loan with a financial institution, carefully consider all alternative sources of capital. Investors, friends or relatives—or even the seller if you're purchasing a business—can possibly provide a portion of your borrowing needs that may not qualify for a bank loan. Discuss these options with your financial advisor or your banker.
Choose the right lender – If you decide you need a loan, approach lenders who make loans to businesses of your size, in your industry or in your geographical area. If the institution already knows you, your business, your industry and potentially your customers, they may already have a great deal of the information they need to make an informed lending decision.
Explore leasing versus purchasing – If you expect to use the funds to purchase a piece of equipment, you may want to discuss leasing options with the equipment vendor instead. Many manufacturers offer leasing agreements with lenders who may be familiar with your type of business.
Loan terms – Be sure that the terms of a loan will align with your expected cash flow, allowing you to meet the payment terms, on schedule and in full.
Collateral – Try to avoid pledging a lot of collateral for relatively small loans. Instead, offer collateral that is tied to the purpose of the loan. For example, if the loan is for purchasing a new machine, offer a security lien on the machine as collateral.
SBA loans – Depending on the size of your business, you may want to consider a Small Business Administration (SBA) loan. The SBA encourages lending to small businesses by guaranteeing parts of loans made to businesses of certain sizes where the proceeds are being used for certain purposes. You can talk to an institution offering SBA loans to learn more.
Organizational documents, including Articles of Incorporation, LLC or Partnership Agreements, Operating Agreements, By Laws, etc.
Your business plan should play a major role in your decision to borrow and may play a major role in a lender's evaluation of your loan request.
What has your annual revenue been during the past 2 to 3 years?
Are your payroll, property and income tax filings up to date?
Do you work with a qualified tax professional to help you maximize your tax benefits?
Do you have records that verify the stability of your client or revenue base?
Is your cash flow greater than your monthly loan payment would be?
Now that you have an idea of what lenders look for, you can use the process of preparing to borrow as a tool to evaluate your business and plan for its success. The proper preparations can strengthen your business as well as your case for borrowing.
Business credit cards are subject to business type and credit approval.
The information provided is not intended to be legal, tax, or financial advice. BB&T hopes you find this information useful but we cannot guarantee that it is accurate, up to date, or appropriate for your situation. You should consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.