Loan Application Lessons: Always Sweat the Details

Often I run into business owners who micro-manage their companies on the small inconsequential stuff and then fail to properly supervise business duties and roles that need the utmost attention to detail.

Small businesses have always had to run “lean and mean.” With a small management team you might have to wear more than one hat at one time. You might be acting as CEO one day and controller the next, while always wearing your chief sales officer hat. This can be a great way to save management expenses, but be careful. There are lots of “tasks” that can be delegated and some that just shouldn’t be. If you are the owner, remember that no matter what someone on your staff says or does, you are ultimately responsible for the decision. It is your signature on the contracts and your personal guarantee for loans and leases. That doesn’t even take into consideration your company’s reputation, growth potential, or lost opportunities if something goes wrong.

I am a big believer in delegating tasks. For example, getting a loan at the bank or another type of funding involves a great deal of paperwork. There is usually a large list of documents that need to be prepared and delivered to the lender. But it is your responsibility to make sure that once you collect the documents you verify each one before it leaves your office.

Over the past couple of months I have seen businesses hurt while applying for loans by relying on employees too much and not having good oversight. Here are some examples of what can go wrong:

Management titles not matching on all loan documents. If you are a CEO and controller, decide what your official title is before filling out any applications. Sending in documents that have you listed as CEO on one document and have someone else listed as CEO on another is a red flag for any lender.

Obtaining a new loan will require a “use of funds” statement. Make sure that you have listed all required funds and what they are for. Also make sure they are within the guidelines of what the funding source will loan against. If you put down $XX for “goodwill,” and the lending source will only lend against hard assets, your document creates problems.

Personal financial statements must be signed within 90 days of submission. I have seen many loan applicants just re-date the document. This is fine if nothing has changed, but there is a good chance things have. Re read the document completely in great detail before resigning. In some situations you might be required to pledge additional personal collateral for a loan. If you list a larger amount of money as cash and they are reserved for paying taxes, that could create an obstacle in getting your loan approved. If assets on your personal financial statement are “reserved,” so indicate.

Read all contracts before you sign, and then read them again. If you don’t understand something, turn to your trusted advisors (attorney, CPA, banker, business coach) for help. Once you think you understand the contract, explain it back to your advisor just to make sure you really understand ALL the details. Neglecting a small detail or stating it incorrectly could potentially cost you thousands of dollars.

Remember: No matter how long someone has worked for you or how competent they are, everyone makes mistakes. Make sure someone else’s mistake doesn’t cost you or your company.

Sam Thacker is a partner in Austin Texas based Business Finance Solutions

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Twitter: @SMBFinance