by S Lorentz

Created on: August 13, 2008   Last Updated: September 03, 2008

As a respected professional in the Financial Industry I'd like to lay out some footing on what you need to know about business loans. My current position is with an international financial institution and I manage the Retail Outbound Sales and Business Outbound Sales Departments. My goal is to help you obtain your goal of determining what type of loan you are looking for, what do you qualify for, what information you will need to apply, and how long it will take to get your loan.

The first determining factor when looking for a business loan is how long the business has been established under current ownership. Current ownership is key. Generally most creditors look for a minimum of two years in business to extend credit to a business. There are programs in place for start up businesses as well. If you recently acquired a business or are looking to purchase an existing business; most lenders will still categorize you as a start up business.

When extending credit to a business, lenders will look at several areas to determine approval. The essentials to an approval rely on: ability to repay, collateral, and credit history. The ability to repay looks at your current debts and current income as well as your proposed debts and proposed income. The bank or lender needs to know they will receive payment on who they lend to. Collateral can be any number of things. Collateral can be a property, a piece of equipment, inventory, accounts receivables, etc. Depending on type of collateral used the lender will decide what percentage they will lend up to. Last but certainly not least, is credit. Both the business and personal credit history will be looked at to determine approval.

What is needed at time of application? Most lenders will require a completed business application, two years personal taxes for each owner who holds 20% or more ownership, verification of business ownership, two years business taxes (if applicable), and verification of assessed value of collateral. Some lenders do offer unsecured loans/lines of credit that does not require collateral. In this situation, guidelines are stricter as far as ability to repay and credit. There are separate guidelines for start up businesses.

When looking to establish a start up business, many financial institutions will recommend looking at the SBA Programs available. The SBA (Small Business Administration) is backed by the Federal Government. It is not the only source for start up businesses, but it is a good place to start.

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