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.

How to make sure the lender will like your financial statements

As a small business owner,  you or your accountant are completing your financial statements which includes your tax returns.  Make sure some basic numbers are correct to look attractive to potential lenders and investors.

Showing net income on your financial Statements

Showing a net profit is important. Many lenders will decline your business loan request if you do not show a net income? Why? You do not have enough business income to make the payment on any new loan.

Proof of income

Having financial statements with net income also serves evidence of income. Other items that show as proof of income include:

  1. Business Tax Returns
  2. W-2 Statements or employment pay stubs
  3. Business bank statements
  4. Balance sheets, profit and loss statements and financial statements

Gross income and net income are not totally in your immediate control.   An increasing gross receipts figure is a major number lenders look at .    Are sales increasing?    Increasing sales are extremely appealing to potential lenders and investors.   The business is heading in the right direction.

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Net income and taxable income: closely looked at figures

Is the business profitable?    The lender will look closer when gross income is increasing but net income is still low. Sometimes amortization and depreciation are handled differently from one year to the next.

Officer salaries may have increased on the corporate return for accounting reasons which lowers the net income figure.    However, if expense figures are handled the same from one year to the next, the lender will expect net income figures to at least remain the same or increase.

Many lenders will not intensely scrutinize requests under $100,000.  other figures, such as retained earnings, cash on hand, or request a personal financial statement to review listed stock, stated value of business, real estate holdings, and other assets, nor itemization of debt that appear on a personal financial statement.