Reasons for Borrowing
Every potential lender will want to know the purpose of the loan you are requesting. Potential lenders will be more comfortable if the funds are going to be used to produce lasting value for your business. A loan to expand your business to meet the needs of a signed contract with a major customer will be more attractive to a lender than one where the proceeds will be used to meet ongoing operating expenses due to a slow down in the business.

Borrowing From the Right Source
Be sure you have considered all of your alternative sources of capital before you go to a financial institution. While asking friends or relatives for funds can be difficult, that alternative might be preferable to approaching a lending institution, especially if the loan you need is for a small amount and for a short period of time.

Are you approaching lenders that are accustomed to making loans to businesses of your size, in your industry or in your specific geographic area? If the institution already knows you, your business, your industry and even your customers, they might already have a great deal of the information they need to make an informed lending decision.

If you expect to use the funds to purchase a piece of equipment, you may want to discuss equipment-leasing options with the equipment seller. Many manufacturers and retailers of machines (from office equipment to large industrial equipment) have arrangements with leasing companies which might be accustomed to dealing with your type of business.

Type of Loan Sought
Does the repayment term of the loan match your expected cash flow? For example, will receipts from your receivables enable you to meet the payment terms.

Be prepared to offer collateral that is tied to the purpose of the loan. Getting a loan to purchase a large new machine may require that you offer a lien on the machine as collateral. Try to avoid pledging large amounts of collateral for relatively small loans.

Depending on the size of your business, you might want to investigate a Small Business Administration loan. The SBA encourages lending to small businesses by guaranteeing parts of loans where the proceeds are being used for certain purposes. You can talk to an institution offering SBA loans to learn more.

Documentation Needed
You will be required to complete a loan application that will call for corporate and perhaps personal financial information. In addition, you will probably need to provide:

1. Tax returns for the business for the past couple of years.
2. Potentially, personal tax returns for the past couple of years.
3. Financial statements for the business for the past 2 or 3 years and a current year-to-date statement. The lender will probably want both income statements and balance sheets. They may also want detailed information on accounts receivable, accounts payable, investments and fixed assets.
4. A historic cash flow statement along with projections for the next 12 months.
5. Copies of significant contracts with customers and vendors.
6. Other important information such as patents or key proprietary information.

Providing a documented business plan will help establish your understanding of your business and markets. Be sure your plan is up to date and provides all the information the lender will need to understand your business and make a fully informed lending decision.

Know What You Want to DiscussIn order to be comfortable at the first meeting, role play your presentation before a friend or colleague before you get there. Decide what kind of help you think you need from the banker and how you will ask your banker for his or her suggestions.

Borrowing money for your business is a serious step. You can use the process of getting ready to borrow as a tool to objectively review your business and plan for its success. The proper preparations can strengthen your business and strengthen your case for borrowing.

Teresa Burns has been a banker for 24 years. Currently, she is the Community Bank President of Gold Bank-State Line in Leawood, Kansas. Contact her at 913.307.2400.

Be Prepared

1. Build a case for how you will use the funds and how they will enhance the short-term and long-term results of the business.
2. Consider whether your primary financial institution is the right lender to approach.
3. Explore the possibility of an Express Loan, which takes relatively little time.
4. Be prepared to provide the necessary documentation.
5. Be prepared for the Interview. Ask for something that you believe you need.

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