What lenders look for

Once you’ve listed your costs and determined the amount of funding you have and how much more you’ll need, the next step is to prepare a presentation for potential lenders, such as a commercial bank, agency or other financial company that makes loans to small businesses.

In deciding whether or not to make a loan, lenders are assessing their risk: What is the likelihood that you will pay back what you borrowed? To make that determination, the lender will look at how much you say you need, what you are using it for, how realistic your cost and revenue estimates are and how long it will take you to repay the loan.

Information to provide

In the case of a small business loan, the lender will normally ask you to provide collateral, or security, in case you can’t repay the loan. The collateral may be assets of the company, like equipment you purchase. But a lender might also ask for a guarantee that pledges your personal assets, including your savings and investment accounts and any real estate you own, such as your home, as collateral. Lenders also want to know how much of your own money, or equity, you have invested in the business. They believe that the more equity you have, the more committed you are to the business and the better chance it has of succeeding.

In reviewing a loan application, lenders will also review your personal credit history to see if you have paid off previous loans on a timely basis or ever filed for bankruptcy. They also want to know if you have owned or operated other businesses in the past and what happened to them. That’s one reason it’s so important to check your own credit report and credit score before applying for a business loan. The FACT Act allows you to get one free copy of your credit report from each of the three major credit reporting agencies once a year. To request your report, go to www.annualcreditreport.com, or call 1-877-322-8228. While your report is free, you’ll have to pay a small fee for your actual credit score.