Have you ever considered applying for a business loan for projects such as an outdoor expansion, remodel or additional locations?
If you’re like most, you shudder at the mere thought of walking into a bank and dealing with all of the questions and paperwork that accompanies a loan application. However, it doesn’t have to be scary if you go into the process prepared.
In fact, studies have shown that one of the top reasons small business owners fail to secure loans is because of the perception that they will be unable to obtain a loan. So, if you’re considering a loan for your pizzeria anytime soon, preparing yourself properly can help you keep a positive outlook.
1. Start by researching the lender you’re interested in. Find out what their individual requirements are and what terms they’re offering. Certain banks do not loan money to certain types of businesses, so save some time by checking this out first.
2. Know your answers beforehand. There are basic questions that every lender will ask you and that you need to be able to answer. Questions such as, “What is the purpose of the loan?” and “How much money do you (really) need?”
3. Be very specific and state a firm dollar amount. Never indicate a range, underestimate the amount you need, or say, “Whatever you can give me.”
4. Have a firm grasp on your personal and business credit profiles. You never want to appear as if you haven’t been keeping track of your financial history. This will be a red flag to the bank.
5. Learn the differences between loan types and which one you think you’ll need before spending hours filling out an application. Some lending options may take a few days (short-term business loans), some may take weeks (bank loans) and others may take months (SBA loans).
6. Have a business plan prepared. Lenders will ask you questions about your costs, customers, revenue, profit/loss projections, etc. You’ll want to know the answers.
7. Get your existing pizzeria rated. Existing businesses can get rated through Dunn and Bradstreet. The better your rating, the better your chance at landing a loan.
8. Ask first at the bank you’ve been using for years. It makes the most sense to obtain a loan from a bank that’s already doing business with you. If you don’t have luck there, try smaller, local credit unions.
It’s true that it’s harder than ever to obtain a business loan. But, those who approach the process with confidence and a firm understanding of what lenders are looking for have a much higher chance of securing a loan than those who enter the process blindly. Below is a checklist provided by the Small Business Administration that will help ensure you have everything in order before approaching your bank.
Business Loan Checklist
(Courtesy of the Small Business Administration, SBA.org)
The following are typical items that are required for most small business loan applications:
Personal Background: Either as part of the loan application or as a separate document, you will be asked to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc.
Resumes: Some lenders require evidence of management or business experience, particularly for loans that are intended to be used to start a new business.
Business Plan: All loan programs require a sound business plan to be submitted with the loan application. The business plan should include a complete set of projected financial statements, including profit and loss, cash flow and a balance sheet.
Personal Credit Report: Your lender will obtain your personal credit report as part of the application process. However, you should obtain a credit report from all three major consumer credit rating agencies before submitting a loan application to the lender. It’s critical you try to clear up inaccuracies before beginning the application process.
Business Credit Report: If you are already in business, you should be prepared to submit a credit report for your business. As with the personal credit report, it is important to review your business’ credit report before beginning the application process.
Income Tax Returns: Most loan programs require applicants to submit personal and business income tax returns for the previous three years.
Financial Statements: Many loan programs require owners with more than a 20% stake in your business to submit signed personal financial statements. You may also be required to provide projected financial statements either as part of, or separate from, your business plan.
Bank Statements: Many loan programs require one year of personal and business bank statements to be submitted as part of a loan package.
Collateral: Collateral requirements vary greatly. Some loan programs do not require collateral. Loans involving higher risk factors for default require substantial collateral. Strong business plans and financial statements can help you avoid putting up collateral. In any case, it is a good idea to prepare a collateral document that describes cost/value of personal or business property that will be used to secure a loan.
Legal Documents: Depending on a loan’s specific requirements, your lender may require you to submit one or more legal documents. Make sure you have the following items in order, if applicable: Business licenses and registrations required for you to conduct business, articles of incorporation, copies of contracts you have with any third parties, franchise agreements and commercial leases.