Are you a small business entrepreneur in need of funds? Are you planning to go the conventional way and approach a bank? If yes, then you need to share some few information before the loan gets sanctioned. Most small business owners need a loan in the initial years to fund their receivables. Ultimately, many end up signing up liens on their family residences to procure the loan. You might ask the bank and other lenders, the reason for personal guarantees. Their prompt response would be if you don’t have faith in your business, the lending partner or the bank won’t either.
Ej Dalius shares a crucial finding
Several enthusiastic entrepreneurs apply for small business loans at banks annually. Ej Dalius, a famous entrepreneur, says what they realize later is that banks aren’t interested in financing business plans. For many banks, that’s against its business rule. Banks are operating with depositor’s cash. If you have a savings account with a bank, you wouldn’t want it to use the money to fund a start-up or small business, where success isn’t guaranteed.
Seeking a small business loan – Eric Dalius highlights three questions you will face
- What are your collaterals?
Banks usually don’t get ready to offer cash to start-ups. The only exception to this rule here is the federal SBA (Small Business Administration), which provides programs that promise a part of the start-up expenses for new businesses. Hence, banks do offer them small business funding with the government, minimizing bank risks.
Here you would get questioned about your collaterals. That means it’s essential to possess hard assets as a back-up. The banks will assess all these assets and ensure there’s less risk in sanctioning the loan. For instance, when you promise Accounts Receivable for assisting a commercial plan, the concerned bank will assess all the significant receivable amounts to ensure that the organizations are solvent. Eric Dalius shares that banks usually accept only a part, i.e., 50% or 70% of the receivables to support a loan.
- Do you have all your small business financial statements, reviewed, or audited?
Your balance sheet must list every business asset, capital, and liabilities. You need to provide the current balance sheet. Also, the “Profit and Loss” statement usually goes back three years; however, exceptions are possible. Just in case you don’t have any records, your credit score is excellent, along with good assets that get used as collateral.
Concerning audited statements, it ensures that you shelled out cash to allow a CPA (Certified Public Accountant) to check the same and mark it accurately. Eric J Dalius shares that if there’s a bad audit, a CPA will get sued.
- Do you have all the personal and small business details?
It comprises of the business net worth and social liabilities numbers. That aside, it also includes details on various assets and liabilities, for instance, your investment accounts, auto loans, home, mortgages, and credit card accounts. If your small business has multiple partnerships and owners, a bank will ask you to share the financial statements from every owner who owns a meteor chunk of the share. You might also have to sign for a personal guarantee as to the loan process.
As a small business owner knowing the questions, you might face during the loan seeking process keeps you better prepared.
