If you are a small business owner in North Carolina or looking to start your own, you may need some extra capital to help get you started.
But the question becomes, what does a banker want from you?
When a banker considers making a small business loan, they typically want to assess the borrower’s (your) ability to repay the loan. They will consider several factors, such as your credit history, business revenue, expenses, and the collateral available to secure the loan.
Here are some specific things a banker may want to know when making a small business loan:
Top 6+ Things A Banker Will Need If You’re Getting a Small Business Loan
Business Plan
A well-crafted business plan is a crucial element in securing a loan. It should clearly outline your:
- Business Strategy
- Target Market
- Competition
- Financial Projections.
The plan should also explain how the loan will be used, for example, to purchase equipment, hire new employees, or expand the business. A solid business plan will demonstrate to the banker that you have a clear understanding of your business and a well-thought-out plan for growth and success.
Cash Flow Projection
A cash flow projection is a realistic projection of profits and a twelve-month (month-by-month) cash flow projection. This spreadsheet should show the specific month that cash will be received from various sources and the month that specific disbursements need to be made.
Financial Statements
Financial statements provide a snapshot of a business’s financial health. Bankers will look at your past financial statements to assess your ability to repay the loan. This includes reviewing the following:
- Balance Sheet, which shows your business’s assets, liabilities, and equity
- The Income Statement provides information on the business’s revenue and expenses.
- The Cash Flow Statement provides information on the inflow and outflow of cash, which is critical in determining the ability of the business to repay the loan.
If you are starting out, they may want to see your personal tax returns for the past three years.
Collateral
Collateral is property or assets the borrower puts up as security for the loan. If you cannot repay the loan, the banker can seize the collateral to recover the funds. This can provide added protection for the banker and increase the likelihood that the loan will be approved.
Personal Guarantee
A personal guarantee is your promise to repay the loan if the business cannot do so. This guarantee can assure the banker that the loan will be reimbursed. A personal guarantee may also be required if your business does not have a strong credit history or the loan amount is significant.
Credit History
The credit history of both you and your business is an important factor in determining the risk of making the loan. Bankers will typically check the credit reports to assess the creditworthiness and determine the risk of default. A strong credit history can increase the chances of loan approval and favorable loan terms, while a poor credit history can make it more challenging to secure a loan.
Additional Items
They may also want the following:
- A written request for a specific amount of money.
- A projection of how and when you will repay the loan.
- What will happen in the event of your disability or death; in other words, do you carry disability, life, and general liability insurance?
- A narrative relating to your personal business experience.
Final Thoughts
The bottom line is that by gathering this information, a banker can make a more informed decision about whether or not to make a small business loan to you and what terms and conditions to offer you.
