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Loan Qualifying Factors

When seeking funding for your small business
it can be a tremendous advantage to know
exactly what the lender is looking for in a
financing opportunity. Generally speaking,
there are five basic aspects of your business
that every lender will evaluate when consid
-ering a loan to you:

Your vested interest in the company. Lenders want you to have a reasonable amount of equity invested in your company. They tend to feel that they're in a more secure position knowing that your money is on the line right along with theirs, and this drives the assumption that you'll work even harder to make the venture a success.

Your ability to repay the loan. Virtually all business lenders normally require at least two possible sources of repayment. The primary source is directly from the company's revenues (its cash flow). The second, or alternate, method is through the sale of collateral pledged by the business against the loan. In addition, lenders will require you to provide the company's current and past financial statements and balance sheets, profit and loss statements, and accounts receivable. Records of your personal assets, liabilities, and tax returns (along with those of any partners in the business) will also be necessary. If you can show on paper that your business has consistently made a profit, your odds of getting the requested financing will dramatically increase.

Your own personal business experience. Lenders definitely prefer that loan applicants for new businesses possess experience in the particular business that they're going into. If you do not personally have such experience, the lender will likely want you to partner with (or at least hire) those who have the necessary expertise. Nevertheless, you should at least be able to show the lender that you do possess a keen business insight and management experience.

Your credit profile and history. This, of course, is one of the primary factors considered in any institutional lending situation. Lenders are going to scrutinize your credit profile – both your business and personal credit. Therefore, before searching for a business loan, it's wise to obtain a copy of your credit report from all three major credit reporting services: TransUnion, Equifax, and Experian . Check your reports closely for errors and omission of any good credit you may have that wasn't submitted to the credit bureaus, and do your best to repair any discrepancies before you apply for the loan.