7 Questions to Answer Before You Get to the Bank

Contributed by Scott Rogalski, SBDC Business Advisor

The top 7 questions you should already have answered before inquiring about a business loan with your banker:

  1. How much of a loan amount are you requesting? It is important to have as close to an exact figure as possible for what will be needed to start or grow your business. You also need to know how the money is going to be spent, for instance, the amount that will be spent on salaries, marketing, equipment, improvements, building purchase, etc.
  1. How quickly will you need the money and why? To improve results and lessen frustration, you will need to set realistic expectations regarding your time frame for receiving funding. Don’t expect to receive the money yesterday. Most fully underwritten bank loans take 30-90 days to close, especially for start-ups. Non-bank loans, like hard money financing, can fund in as fast as 1 week, but the costs of funds are more expensive.
  1. What type of collateral do you have? Do you own a home, and, if so, how much equity do you have? Are you willing to use your home as collateral if asked? One of the most popular reasons why loans get declined is that borrowers don’t believe in themselves enough to put a lien on their home. Do you have business assets, equipment, vehicles, retirement and/or cash?
  1. How much are you worth? What do you own (assets) and what do you owe (debt)? It is very important to know how to calculate your net worth from your personal financial statement.

Assets = cash, retirement, investments, car, and home values.

Debt = loan amounts for car & home, student loan, timeshare, credit cards etc.

Net Worth = total assets minus total debt.

  1. What is your credit story & score? Determining if one has good or bad credit used to be all about the score, but now it is more about the story. It’s very important to be up front if you have ever had a BK, short-sale, foreclosure, repossession, charge-off, or delinquency of any kind. Some financial institutions will waive these bad marks as low as 2-3 years seasoned. Explain the story and most of the time, if you are upfront, there is hope for credit as low as 550.
  1. How long have you been in business & what records can you provide? If you are a start-up, you are going to need a strategic plan, projections, and your story (why you, why this product, and why now). If you are an existing business, how long have you been operating? Depending on the answer, you will need to bring in the past 2-3 years’ taxes, as well as your current year to date (YTD) income statement and balance sheet.
  1. How will you pay back the loan? If you are a start-up and are planning on keeping your job, it’s very important to bring in past personal taxes, current pay stubs, and/or W-2’s. If you are not planning on keeping your job, then you will need to have some really good 2 year projections showing sales and profit expectations based on the current climate of your industry. If you are an existing business and have profits to cover the loan payment then great, but if not, then you are going to need some great projections as well or some secondary income source like a spouse or business partner.