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Unlocking the Door to Your Business Loan: What Lenders Look For

October 24, 20233 min read

So, you're gearing up to take your business to the next level, and a business loan is on the horizon. Exciting times! But let's be real navigating the world of business loans can be a bit like entering a labyrinth. Fear not, though! We've got your back, and we're here to break down the key things lenders are scrutinizing when you're in the hot seat of a loan application. 

1. Credit History: The Gateway to Trust 

First things first—your credit history. It's like the resume of your financial life. The longer you've been in business, the more thorough this check might be. Expect lenders to delve into your credit history, possibly knocking on the doors of vendors and other loan providers. So, it's a good idea to have your financial facts in order. Transparency is key, and being armed with your credit details can only make the process smoother. 

2. Cash Flow: Where the Money Dances 

Cash is king (or queen if you prefer), and lenders want to know how it's dancing through your business. Your cash flow history is the spotlight here. It's not just about the big numbers but the rhythm—how your receivables groove with your payables. Lenders are eyeing a magic ratio of about 1.15:1. This number tells them if your income can comfortably tango with your short-term debt. Show them the financial dance floor, and make sure it's a well-choreographed routine. 

3. Collateral: The Security Blanket 

Picture this—collateral as the security blanket for lenders. They want to minimize risk, and collateral is their safety net. It's like a matching game; they want the collateral to align with the type of loan on the table. Whether it's property, inventory, accounts receivable, or other investments, be prepared to play this matching game. It's not about what you have; it's about what matches the dance of your business. 

4. Key People Involved: Character Matters 

In the world of business loans, it's not just about numbers; it's about the characters driving the narrative. Who are the key players? Lenders are interested in your success track record, your relationship with them, referrals from the pros (accountants, lawyers, business advisors), and evidence of your commitment to the business planning process. Show them the characters behind the scenes, and make sure it's a cast worth investing in. 

5. Loan Documentation: The Paper Trail 

Ah, the paperwork—it's the necessary evil. Lenders want to see the numbers on paper, and they're thorough detectives. Prepare the financial statements for the past two years, projected balance sheets and income statements, projected cash flows for the next 12 months, and personal and business tax returns. Don't forget the star of the show—the business plan. This is your business's narrative, so make it a page-turner. 

Feeling a bit overwhelmed?

No worries! If you need a guiding hand through this labyrinth of loan applications, Competitive Edge Business Solutions is here for you. Whether it's deciphering credit histories, fine-tuning cash flows, or crafting the perfect business plan, we've got the expertise to make your journey smoother. 

Ready to elevate your business? Contact us today, and let's turn those loan dreams into reality! 

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