How to qualify for a Commercial Loan?

What do you need to do, to convince a lender to part with their funds and place it in your care, to create a business of your choosing? Let’s take a look at what lenders traditionally seek after. 

Financial Strengths 

Among the very first things that any lender will look at would be the financial strength of the business. You will need to convince them that your business has the ability to pay its way and still have enough to repay them the loan. Of equal importance would be your being able to convince them that you have the ability to profitably  manage the enterprise or the team of managers you have selected can adequately do the job. 

You will next need to show them via spreadsheets, your cash flow, balance sheets, profitability and cash flow also will play an important role in convincing them of the financial strength of the business. Tax returns and income statements will be necessary to convince them of the health of the enterprise also. Most lenders will not consider a business that has less than two years of operating history. In preparing your documents be prepared to explain any shortcoming  properly.

Personal Credit History

In the world of business loans you would often hear that your loan is not decided by your personal credit, However after hearing that most folks are confused when the same people follow that up with a request for your credit file. Well be assured that there is no mix-up, the lender is just checking into your character and what better place than your credit file to get that information. There is a list titled the Six “C’s” of credit. It would be a good read for anyone considering a commercial loan.     

• It starts with Collateral: Is the property in a wholesome state? Its      Marketability and physical condition, are they up to standard?         
• The next would be Capacity. They seek assurance that the borrower has the capacity to carry out the terms of the loan. What of the loan obligations of your team?         
• Your Character would next come under scrutiny. Any derogatory items hiding in your closet would be hauled out to be examined.         
• The Surrounding Conditions. They would do some investigations in the      possibility of a quick resale if they have to.         
• Capital; no money down might just be slang for all it’s worth. Some money      must be involved. As they say you must have some skin in the game. It might not be yours but some money must be exchanged.         
• Your Credit finally comes into review. While in asset based lending credit plays a small part. Good credit can make a difference between a ‘Yes” and a ‘No”; it all comes down to how good or bad your other 5 C’s are. This brings up a most important point. Before you attempt to apply for a loan; do a personal review of everything that might impact your credit and seek to get them right.     

The Business Viability 

In order to convince your Lender it would be necessary to produce a Business Plan. This Business Plan must be complete with all the Financial Spreadsheets needed to do a good job of convincing the lender that all points have been covered. This will include strong Financials, Market Research with the projection of growth including the ability to conquer a realistic amount of the market share. While many lenders never see the business plan they all will ask for an Executive Summary which is extracted from your plan. If there is one place that you ought never to skimp with, this is the writing with your Business Plan.Have this done by a professional; someone with knowledge of the industry you're in and experienced in the writing of business plans. 

You will need to show the profitability and the long term viability of the business. Some borrowers adopt the attitude that why should the lender worry if their loan is being paid? If you are inclined to think that way be warned that that is very short sighted thinking. Several things are wrong with that line of thought. First off they could have one of their own on your Board, also they would have annual financial reviews during the first 5 years or so.  

While many lenders are about growing their net cash base they also share a feeling of pride in looking back and seeing the many businesses that they have helped to grow. Just as important as the data that you have presented to qualify for the loan they would be seeking your exit plan. How are you going to replace that debt? Do you plan on selling the business? Refinance the loan? Whatever it is that you plan to do to repay the loan they would like to see it as part of your plans.

The Team You choose 

Your success with qualifying for a loan might just come down to the members that makeup your team. How much experience is there between the members of your team in the given industry you are seeking to get into? A management team that boasts of years operating in top flight positions within the industry speaks volumes on your behalf. Another factor that could impact your loan is the prevailing market conditions. Are they conducive to your opening another unit of production in this current time? 

If you have done your selecting well and have gathered together a team of high class individuals, the worst that might happen is that you might suffer a setback of some sort. In the end however there should be enough talent in your team to hurdle any opposition that might stand in your way. 

Success in acquiring a Commercial loan involves a series of steps. There is first the planning stage and the preparation. If you start early enough and have done a good job of comparing the different lenders and their demands, paying attention to all key factors involved you are halfway there.