Lenders will want to review both your company's credit history (if the company is not a startup) and, since a personal guarantee is often required for a small business loan, your personal credit history. We recommend that you obtain a credit report on you and your company before applying for credit. If you discover any inaccuracies or problems, you can correct them before any damage occurs to your loan application. If you can, find out what credit reporting company your potential lender uses and request a report from that company.
Most conventional lenders expect a minimum of four or five business experiences listed in a business report before considering the company's solvency. If you've been operating your business without credit or with personal assets, you should consider making some purchases with business credit to establish a credit history for your company. If the dispute is not resolved and your credit report is not adjusted, you have the right to submit a statement or explanation about the alleged debt along with the credit report. If your credit report is tarnished, you might consider asking that creditors with whom you had a good credit history, but who haven't reported transactions, be added to the report.
For a minimal fee, most credit bureaus will add additional information about creditors. Many banks consider the amount of investment that the owners themselves are committing to the company as proof of the nature of the borrower. On top of that, many commercial lenders want the owner to finance between 25 and 50 percent of the projected cost of a startup or new project. If your investment is considered negligible, a lender may consider it a lack of owner trust and dedication to the business.
A business plan, depending on your company's credit history and the purpose of the loan, may be unnecessary, and a brief description of your intentions may be sufficient. Having tangible or intangible assets, such as vehicles, inventory, real estate, or accounts receivable, generally assures lenders that the owner is unlikely to leave the business. If business owners can show that conditions are favorable for continued growth, they are more likely to obtain the necessary funding. A company's cash flow will generally include not only the money that enters and leaves the company due to its operations (sales minus expenses), but also any cash flow from investments or financial activities (e.
Information from your company's credit report helps lenders determine a company's creditworthiness by analyzing how it manages financial obligations, such as payment history and credit use. A solid business credit report can positively affect your results, possibly helping you get better financing options, such as. A myriad of loan documents that include business and personal financial statements, income tax returns, a business plan, and that essentially summarize and provide evidence of the first four items on the list. Develop a good plan of action to help the loan officer understand why it makes business sense to grant this loan to you and your company.
Small Business Resources content (including, but not limited to, third-party and Bank of America content) is provided “as is” and does not carry any express or implied warranty, promise or guarantee of success. Potential lenders will be interested to see if there are business assets that can help secure the loan. When determining business financing decisions, lenders focus on the next five “C's” of credit. This information can give the lender an idea of market demand, management competition, business cycles, and any significant changes in the business over time.
As most lenders know, cash flow also presents the most worrisome problem for small businesses, and they will typically require historical and projected cash flow statements. Bank of America has not been involved in the preparation of the content provided on unaffiliated sites and does not guarantee or assume any responsibility for its content. .