Preparing for Loan Applications

Obtaining a commercial loan requires a great deal of legwork and preparation. These are some key documents you should have ready to present to the lending institution:

• your company's financial statements including balance sheet, income statement, and tax returns
• your personal financial statements and tax returns for the past three years
• monthly cash flow projections based on obtaining the loan
• thorough and detailed business plan
• specific details of how the loan will be used
• management profile

The organization and timely preparation of these documents will be a reflection of your business, so pay close attention to the presentation.

Note that one of the most common reasons businesses get turned down for commercial loans is that their accounting is sloppy or deceptive. Reducing your reported income is one way to avoid taxes, but it can also make your business look like a horrible candidate for a loan. Make sure your financial documents are reviewed by a qualified accountant before you take them to lenders.

Are you classified as an undesirable loan?
Even before you complete an application, you may be fighting a losing battle: some types of businesses are deemed "undesirable" by lenders. Addressing this issue will require a great deal of tact, but finding out the answer can save a lot of time and energy for both you and the potential lending institution. You'll have to go directly to the lender and ask whether your industry is classified as an undesirable loan.

This list can vary from one institution to the next, and can be based on risk factors (industries in decline or subject to strict legal controls) or ethical concerns (adult businesses, firearms, or alcohol/tobacco.) If your industry is classified as undesirable, you're going to have a very difficult time obtaining a loan.