Not all banks are created equal, but many of them focus on the same areas throughout the loan review process. Learn what documentation, projections and narratives you’ll need to prepare as well as tips to ensure you negotiate the best loan package available.
- A line of home equity credit
- A line of credit for business working capital
- A commercial short-term loan
- An equipment loan
- Real estate financing
- Some other type of commercial or consumer loan
Five keys of loan applications
6. Myriad pieces of loan documentation that includes business and personal financial statements, income tax returns, a business plan and that essentially sums up and provides evidence for the first four items listed
The first three of these criteria are largely objective data (although interpretation of the numbers can be subjective). The fourth item-your character-allows the lender to make a more subjective assessment of your business’s market appeal and the business savvy of you and any of your fellow operators. In assessing whether to finance a small business, lenders are often willing to consider individual factors that represent strengths or weaknesses for a loan.
Tools to use
To give you an idea of what banks specifically focus on when reviewing a loan request, the Tools & Forms section contains a sample business loan application form that is typical of the kind of documentation you’ll need to complete as part of your loan application package.
We also include an internal bank loan review form used by one small community bank to make its own review of a small business loan.
Credit history
Lenders will want to review both the credit history of your business (if the business is not a startup) and, because a personal guarantee is often required for a small business loan, your personal credit history. We recommend obtaining a credit report on yourself and your business before you apply for credit. If you discover any inaccuracies or problems, you can correct them before any damage to your loan application has occurred. If you can, find out which credit reporting company your prospective lender uses and request a report from that company.
Before you apply for commercial credit, you should review a credit report on your own business, if your business has been in existence for a while. You can obtain check this a free Business Information Report on your own business from Dun & Bradstreet.
If D&B does not yet have any information on you, they will allow you to voluntarily obtain a listing by providing them with some basic information about your business.
Most conventional lenders will expect a minimum of four or five trade experiences listed on a business report before they consider the business creditworthiness. If you have been operating your business without credit, or with personal assets, you should consider making some trade credit purchases in order to establish a credit history for your enterprise.
Reviewing your consumer credit history
Consumer credit agencies are required to remove any information from the report that cannot be verified or has been shown to be inaccurate. However, before you submit a letter disputing any debt to the credit reporting company, it’s often a good idea to contact the relevant creditor directly. If an error was made, you can often clear up the dispute more quickly if you take the initiative.
If the dispute is not resolved and your credit report is not adjusted, you have the right to file a statement or explanation regarding the alleged debt with the credit report. If your credit report does have some tarnish on it, you might consider requesting that any creditors with whom you have had a good credit history, but who did not report the transactions, be added to the report. For a minimal fee, most credit bureaus will add additional creditor information.
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