Pick a cliché, any cliché.
There’s strength in numbers.
Where there’s a will, there’s a way.
You can’t always get what you want.
As those apply to seeking a business loan for working capital, equipment and inventory purchases, or business expansion, it doesn’t matter whether it’s is a small business or a Fortune 1000 firm. The fact is, all companies are equal in the eyes of commercial lenders. Without a clear and concise plan, a company seeking a loan won’t get the cash.
“People who have been turned down for a loan will often tell you, ‘Banks only lend money to people who don’t need it,’” says Richard France, vice president of Middle Market Commercial Lending at Fifth Third Bank in Akron. “In reality, banks lend money every day for working capital, for equipment, for all kinds of assets — but banks only lend money to companies that can prove they can repay the loans.”
France says even though business loans are a commercial banker’s bread and butter, banks are lending depositors’ money, so they must be strict in their due diligence, requiring companies to prove creditworthiness. And even if Donald Trump were to apply for a $5 million business loan, he’d need to present a plan that assures the lender of his abilities as a prudent businessperson.
A plan should detail who the borrower is, the requested loan amount, how the funds will be used, how the loan will be repaid and the collateral being used. The borrower should include a concise business plan outline with information such as the date the company was established, the type of legal entity it is, pertinent management or organizational information and the product or service offered.
In analyzing a commercial loan application, the lender also considers a company’s financial condition, sales and profit trends, revenue projections, cash flow, credit history and the experience and integrity of management. (See sidebar.)
“Regardless of what the capital will be used for, companies get turned down for a business loan because they don’t have sufficient cash flow to repay the debt, they don’t have adequate collateral and they have a troubled or insufficient credit history,” France says. “But if you do your homework and you can convince the lender that the funds can and will be repaid, you will get what you need.” How to reach: Fifth Third Bank, (330) 252-2000
Perhaps you’ve got a gut feeling that your company’s sales will skyrocket this year. But it’s the company’s past performance — not your premonition — that significantly influences a lender’s verdict.
“Banks look for three to five years of history that shows you can repay the amount of requested credit,” says Richard France, vice president of Middle Market Commercial Lending at Fifth Third Bank in Akron.
The bank will request your current business balance sheet, profit and loss statements, financial statements for three years prior, income expense projections for three years out, accounts payable and receivable aging, a listing of fixed assets and a schedule of business debt. Other documents in a loan package, depending on the business entity, may include personal financial statements, tax returns for three years prior and the owner’s resume and business references.