Get Your Business Funded: Creative Methods for Getting the Money You Need

Loan Basics

Getting a business loan will require that you jump through several hoops—properly and in order. You will need to have a lot of documentation prepared for the bank, and the bank will additionally look at your personal credit history, ability to collateralize the loan, business history, books (profit and loss [P&L] statements, balance sheets, etc.), and more.

Because an element of risk is involved in every loan a bank makes, your job is to make the bank understand that your loan's risk is low. You can do that better if you understand the “Four Cs” of credit. When a banker considers a business loan, it will analyze your application through this filter:

• Character. This factor relates to the integrity, reputation, and history of the borrower. In smaller community credit unions and banks, character is a significant factor, whereas in many big banks, your credit score matters more. Character is determined by your payment history, credit profile, letters of reference, and so on.
• Capital. How much money do you need? The more money you seek, the tougher it will be to get.
• Capacity. What is your ability to repay the loan? You will need to be able to show the lender that you will be able to service the loan amount requested and that it will be repaid in full and on time. Therefore, requesting too much is not a good idea.
• Collateral. Not all business bank loans require collateral—in fact, some are unsecured—but that is more the exception than the rule. Bankers like collateral. ...