Requirements your business needs to meet before you can obtain financing

If you plan on approaching a bank or other traditional lender for a small business loan to get your business up and running or to expand your business you will need to make sure that your business meets certain requirements. Here are the requirements that your business is going to need to meet before you can obtain financing.

Number one: Credit score
In order to obtain financing from a bank or other lender either you or your business will need to have a good credit score. If your business is just starting out chances are your business will not have very good credit, if it even has any credit. For businesses that are just starting banks and other lenders will instead look at the business owners personal credit score when determining if your business qualifies for financing. If you plan to start a business, using banks or other lenders for financing you will need to have a good personal credit score. If you are looking at financing to expand your business, your business will need to have a great credit score in order to qualify for the financing. Credit scores are an important requirement if you are applying for a SBA loan.

Number two: Capital
You will need to be able to show the banks that you are not relying on somebody else to fund your business. You will need to show the banks and other lenders that you have invested a reasonable amount of capital into your business. When it comes to investing capital, you can invest cash or you can invest assets that your business can use for operating. If investing assets make sure that, you have receipts or invoice that, prove what the assets are worth. When applying for a loan there will be an examination of your debt-to-worth ratio. This is done so that you can get a basic understanding of how much money you are asking to borrow compared to how much you already have invested in the company.

Number three: Cash flow projection
You are going to need to provide the loan officer with a cash flow projection for your business. Your cash flow projection is used to show when your business can expect to turn the income into cash. It will also show when your expenses must be paid. You will want to provide a cash flow projection that is broken down to a monthly basis for the first year after the loan is made, assuming it is approved. When applying for a loan for a start up business you will be making a cash flow projection based on certain assumptions, such as how much income you expect to make and what expenses you will have. You will need to document all of the assumptions you have made for your estimates and provide that information with your loan application.

Number four: Collateral
Collateral is usually required when applying for a loan, especially if your business has any assets that are worth a large amount of money. If collateral is the only requirement that your business is missing it can be overlooked, but that is going to depend on the bank's policies. When coming up with collateral to use for the business loan you can use business assets or personal assets. Just remember that if you default on the loan you will lose your assets. In addition to putting up collateral you will need to give a personal guarantee, it is required from every person that owns 20% or more of the business.