Do your business want to make a loan? It is important to get a loan from bank to ensure you have enough capital.
You need to prepare before apply for the loan. So do you know what bank need from you? Read this eight things a bank will ask you :-
What Can you Put up for Collateral?
Plain and simple, your business needs to have some assets. A bank doesn’t want to lend you money for your business if they’re afraid they won’t get their money back. So, they’ll look very carefully at your assets to make sure they’re not taking on too much risk.
There are different forms of collateral, like accounts receivable or current inventory, so be prepared with an idea of what you would be able to use.
Also, be aware that many small business owners also have to pledge personal assets (like their home equity) to get a loan. So, be prepared with any ideas for personal collateral before you meet with your lender.
Do you have a business plan?
Not every lender will require a business plan document (and if they do, it doesn’t have to be very long) but banks will want to get a sense of your company. They want to know the product, how big your team is, the market, and more!
What are your finances like?
While banks will want to know about your company, probably the most important information is your business’s financial details. They’ll want to know about all current (and past) loans, all bank accounts, credit card accounts, and investments. Come prepared with everything.
What are your Personal Financial Details?
Not only will the bank ask about the business’s financial details… they’ll ask about yours too. Be prepared to fork over all your info: your net worth, liabilities, assets, credit card accounts, your mortgage, and, of course, social security number. But wait, there’s more!
If your business has multiple owners, the bank will need the financial details of them too (or at least the owners who have a significant share in the company). Come prepared with their info, or them, so the lender can get the information they need.
Were your Financial Statements Audited?
Not all banks require this, but you might consider getting your financial statements audited. Having your statements “audited” means a CPA has gone through your balance sheet (which has all your business’s liabilities, assets, and capitol) and checked it for accuracy. This could cost a few thousand dollars but again, it’s not always necessary.
However, if you do want to check your accuracy (but don’t want to pay for an audit) having statements reviewed is much cheaper, usually around $1,000.
Do you have Accounts Receivable or Accounts Payable?
Banks need to know who owes you money and who you owe. If clients have not yet paid you for your services (accounts receivable) or you, like many others, wait until a certain time of the month to pay your bills (accounts payable), and have some outstanding, make sure you keep a record. Keep your business’s financial books organized so you can easily show the bank those numbers.
What Ratios can you Commit to in the Future?
Many loans include “loan covenants” in which the borrowing company agrees to keep some key ratios. These ratios include debt to assets ratio, quick ratio, current ratio, pre-tax return on net worth, and pre-tax return on assets. Just know that if your ratios fall below the specified limits in the future, you would be in default of the loan.
Do you Have Life Insurance?
Again, the bank just wants to make sure they’re going to get their money back. If your company is newer, banks may ask you to take a life insurance policy out on one or all the owners. This is because they want any life insurance to pay off the loan before next of kin