Management Experience:
Resumes of each owner and key management members.
Personal Financial Statements: SBA requires financial
statements for all principal owners (20% or more) and guarantors.
Financial statements should not be older than 90 days. Make certain
that you attach a copy of last year's federal income tax return
to the financial statement.
Loan Repayment: Provide a brief written statement
indicating how the loan will be repaid, including repayment sources
and time requirements. Cash-flow schedules, budgets, and other appropriate
information should support this statement.
Existing Business: Provide financial statements
for at least the last three years, plus a current dated statement
(no older than 90 days) including balance sheets, profit & loss
statements, and a reconciliation of net worth. Aging of accounts
payable and accounts receivables should be included, as well as
a schedule of term debt. Other balance sheet items of significant
value contained in the most recent statement should be explained.
Proposed Business: Provide a pro-forma balance
sheet reflecting sources and uses of both equity and borrowed funds.
Projections: Provide a projection of future operations
for at least one year or until positive cash flow can be shown.
Include earnings, expenses, and reasoning for these estimates. The
projections should be in profit & loss format. Explain assumptions
used if different from trend or industry standards and support your
projected figures with clear, documentable explanations.
Other Items As They Apply:
Lease (copies of proposal)
Franchise Agreement
Purchase Agreement
Articles of Incorporation
Plans, Specifications
Copies of Licenses
Letters of Reference
Letters of Intent
Contracts
Partnership Agreement
Collateral: List real property and other assets
to be held as collateral. Few financial institutions will provide
non-collateral based loans. All loans should have at least two identifiable
sources of repayment. The first source is ordinarily cash flow generated
from profitable operations of the business. The second source is
usually collateral pledged to secure the loan.
The 5 C's of Credit
Your bank is in business to make money. Consequently, when a bank
lends money it wants to ensure that it will be paid back. The bank
must consider the 5 "C's" of Credit each time it makes
a loan.
Capacity to repay is the most critical of the
five factors. The prospective lender will want to know exactly how
you intend to repay the loan. The lender will consider the cash
flow from the business, the timing of the repayment, and the probability
of successful repayment of the loan. Payment history on existing
credit relationships - personal and commercial - is considered an
indicator of future payment performance. Prospective lenders also
will want to know about your contingent sources of repayment.
Capital is the money you personally have invested
in the business and is an indication of how much you will lose should
the business fail. Prospective lenders and investors will expect
you to contribute your own assets and to undertake personal financial
risk to establish the business before asking them to commit any
funding. If you have a significant personal investment in the business
you are more likely to do everything in your power to make the business
successful.
Collateral or guarantees are additional forms
of security you can provide the lender. If the business cannot repay
its loan, the bank wants to know there is a second source of repayment.
Assets such as equipment, buildings, accounts receivable, and in
some cases, inventory, are considered possible sources of repayment
if they are sold by the bank for cash. Both business and personal
assets can be sources of collateral for a loan. A guarantee, on
the other hand, is just that - someone else signs a guarantee document
promising to repay the loan if you can't. Some lenders may require
such a guarantee in addition to collateral as security for a loan.
Conditions focus on the intended purpose of the
loan. Will the money be used for working capital, additional equipment,
or inventory? The lender will also consider the local economic climate
and conditions both within your industry and in other industries
that could affect your business.
Character is the personal impression you make
on the potential lender or investor. The lender decide subjectively
whether or not you are sufficiently trustworthy to repay the loan
or generate a return on funds invested in your company. Your educational
background and experience in business and in your industry will
be reviewed. The quality of your references and the background and
experience of your employees will also be considered.
For Additional Information:
SBA's
Preparing and Presenting a Loan Proposal
SBA's
Loan Package Checklist
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