Applying for a Business loan may appear overwhelming due to all the requirements borrowers must comply with. The following guidelines will simplify the process.
Loan Application – Your lender will provide you with their generic applications that will include a request for your personal financial statement, prior tax returns, and a description of and the amount of the loan you are requesting.
Proforma or Feasibility Study – You will need a Proforma done by industry experts. If you have not secured this information visit with your lender for assistance or request info from SBA-Capital.
Projections – Info in the Proforma enables you to create a five-year projection plan describing gross revenue minus expenses providing you with EBITA earnings for you and your lender’s review. Lenders such as SBA-Capital can provide you with an Excel spreadsheet and instructions that will be helpful.
Debt Coverage ratio – With the above Proforma and Projections, you can quickly calculate your Debt Coverage Ratio and immediately determine the viability of your loan. Extremely important to the lender and BORROWER to determine if the EBITA earnings are adequate to support a 1.25% minimum debt coverage ratio.
Experience – The borrower’s experience is an important loan requirement. If you do not have previous experience there are other considerations that may help such as professional training offered by the particular industry or becoming a Franchisee. Ask your lender for more details.
Lender charges for the loan – Interest rate may not vary that much if any. However, fees and pre-payment penalties can vary considerably depending on the length of the loan, is the loan for an existing business or ground up construction, and is this a “single purpose business”.
Term sheet – The lender will issue a term sheet for your consideration that will include an explanation and cost for all the above. This information will allow you to make an informed decision regarding which loan is best for your short and long-term business plan. The above may appear to be time-consuming and challenging. However, if you choose an experienced lender that routinely makes the type loan you are requesting, you will find the process is quite easy and not that time-consuming.
Anything we can do to give our borrowers an edge supports our personal slogan “Business Financing is what we do – Creating custom solutions is who we are”. Please contact Hershel Pierce for a free recommendation on which loans you should consider for your financial planning.