Getting a business loan: Discuss Amounts with Lender

When applying for a business loan, there are many actions the applicant can take to increase their chance of being approved for the request.   One way is to discuss the requested amount with the lender at the beginning of the process.

Lenders often ask the borrower for “the amount of the request”.  A mistake that many borrowers make is believing that if they request twice what they want, they will be more likely to be approved for the real amount they want.  This is not true.  Doing this does not work and will more likely cause the application to be declined.
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Discuss amounts with lender

Get a business loan and discuss amounts with lender

Time in Business – The longer the time in business, the higher the requested amount can be for.   If the time in business is less than 2 years, amounts over $25,000 or $50,000 become difficult and are the maximum that should be considered in most cases.

Business Revenues – The amount of revenues a business generates is a big factor in determining the amount the business should apply for.   For example, a business that has $150,000 in revenues has virtually no chance of being approved for a $250,000 loan request with the vast majority of lenders.   $25,000 to $50,000 maximum would be in line with what a lender would consider for a company with annual revenues of $150,000.

Personal Credit – For most businesses, the owner(s) of the business must sign at closing on the loan and their credit will be reviewed.   Often, the stronger the personal credit is, the higher an approval will be for.

Business Credit – Business credit is often looked at.  If you know that the business has good business credit, a higher amount can be applied for.  Business credit files can be accessed at business credit reporting agencies such as Dun & Bradstreet, Experian Business credit and Paynet.

Financial Statements –  For many business loan requests,  the lender will ask for financial statements.   This is often called financials, or full financials.   It almost always includes the last 2 years complete business tax returns.  It may also include 2 years personal tax returns, a current personal financial statement, an interim year profit and loss statement with balance sheet and the last 3 months business checking account statements.   Lenders will look at the returns to determine Gross Revenues and Net Income.  If these statements are strong, a higher amount can be requested by the applicant.

In summary, when applying for a business loan, consider the factors above in determining how much to apply for.   Applying for the right amount will often assist your business in securing an approval for the amount it needs.

Are asset based loans better for higher loan amounts?

When businesses request funding for higher dollar amounts, they typically will consider an asset based loan or unsecured loan.   Which financing type is more likely to get the businesses a higher funding amount, and which financing products should a business apply for?
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What is considered a higher loan amount for a business loan request?  In general, amounts up to $50,000 are considered low enough that they will be evaluated “App only”, which means that a decision will be rendered based just on the application information.   When a request is over approximately $50,000, financials will be required.   Any amount over $100,000 will be considered a larger request.

For requests over $50,000 to $100,000 and more, it will be easier to qualify through asset based loan programs rather than unsecured programs.   Lenders generally will consider a business with similar credit guidelines up to those amounts, especially up to $25,000.  Above those figures, businesses will need to have Gross Receipts over $1,000,000 or so in order to be seriously considered for a $100,000 unsecured loan.    If their sales are lower, or significantly lower, they should consider only asset based loans.

There are multiple asset based loans that businesses can consider.   In general, the most common types are those in which the lender will take a blanket lien on the business.   This occurs most frequently when the lender is a traditional lender.    The blanket lien means a lien on all furniture, fixtures and equipment.     Another type of asset based loan is when the company puts up equipment assets.    A further asset based financing type is when the business puts up liquid assets, such as listed Stock, Money Market accounts, or even Certificates of Deposit.

Whatever financing is chosen, if a business is requesting over $50,000 to $100,000 or more, they should generally consider asset based loans, as the approval rates for unsecured loans in this dollar range and above is significantly lower.