Your local bank is a great place to start the process of securing a business loan*. Your bank knows your business, it knows you, it knows your credit and payment history, your average cash flow, and other information about your company. However, banks have requirements that your company must meet in order to obtain financing to assist with day-to-day needs as well as business growth.
In general, banks usually look for four things: business credibility, collateral to back a commercial loan, working capital, and cash flow. With these elements, and the help of the relationship manager at your bank, you’ll have a better chance of obtaining the commercial financing that’s often needed to grow a business to greater profitability. Here are some tips on what your bank may require to secure a commercial loan – all designed to demonstrate credibility, collateral and business capital.
Set up an initial consultation with your bank’s business relationship team. This is a good way to learn about your bank’s requirements for obtaining a commercial loan before you even start the application process.At this first meeting, discuss the process employed by your bank to determine a company’s credit-worthiness. Also discuss steps you can take now to better prepare for the bank’s review of your loan application and supporting documentation. Clean up your business credit report. Update all filings for licenses, permits and accreditations. Make sure corporate documents, like annual reports, are on file with the Nevada Secretary of State.In other words, before you apply for a commercial loan, put a shine on your business. Your bank’s business relationship manager can assist you with this process.
To build business credibility, expect to provide the bank with all incorporation documents, including your company’s original incorporation papers, updates to incorporation documents, annual reports, state tax documents, and other paperwork that establishes the legal status of the business, as well as the business’ record of corporate compliance.
Your bank will likely want to see all business tax returns for the past three to five years. These documents should be in your office, or available from your business accountant. Tax documents show trends, such as your company’s growth pattern, expansion, and capital growth. This history of your business may be used to weigh the likelihood that your business will continue to grow as it has in the past. They also show that you are up-to-date in tax filings with the federal government and the IRS.
Your bank will also want to review the current state of the “company books.” Be prepared to provide a complete list of accounts payable and receivables. A company with a history of a large amount of receivables and few payables is more likely to be able to make on-time payments for a commercial loan.
Most banks want to see a detailed loan proposal. The loan proposal should provide complete information on:
- How the loan money will be used
- How the loan will enable the company to expand and generate increased revenues
- An analysis of current business conditions, including competitors, opportunities to grow, market conditions, expectations for payback of the loan and other information
- A brief company history
- Detailed professional information on company principals
Talk to your relationship manager about your loan proposal to determine if the bank needs additional information to make its decision.
Prepare a list of physical assets owned by the company that can be used to collateralize a commercial loan. For example, if your business owns its physical plant (factory, retail outlet, office), that asset can be used to back a commercial loan.
Other assets that can be used to collateralize a commercial loan include:
- Business equipment
- Business trucks and other vehicles
- Intellectual properties that generate revenue, including patents, trademarks and other proprietary intangibles
- Raw materials
- Finished inventory
Small businesses seeking a commercial loan may be required to provide financials on company owners. If you own a small business, expect prudent lenders, like your bank, to look into your personal finances. The bank may conduct credit checks on owners to determine credit-worthiness. A company owner with a poor payment history for personal loans is a less attractive candidate for a commercial loan. You may also be required to provide tax filings, personal mortgage information, and other documentation to provide the lending bank with a broader, clearer picture of who’s running the company. Some business owners back commercial loans with personally-owned real estate, personal equity, and other assets. This provides the bank with greater confidence in your ability to make good on a commercial loan.
Licenses, certifications, permits and other legal and professional documentation may be required by your bank before processing your commercial loan application. Make sure all required documentation is up-to-date and in complete compliance with local, state and federal agencies. A few outstanding OSHA violations may make you look less attractive to your bank, so make sure all issues are resolved, and your business is in good standing with all industry-related agencies.
When it’s time to start the process
Continue to work with the same relationship manager through the approval process, providing additional information in a timely manner. Stay in close touch. They are your liaison between your business and your bank. Securing a commercial business loan can be a lengthy process, but one that can be streamlined with good preparation and solid collaboration.
Give your bank a call today to see what your company will need to provide when applying for a commercial loan, and grow your business with the help of your company’s bank.
For information about a commercial loan* from Nevada State Bank, visit nsbank.com or make an appointment to sit down with one of our knowledgeable business bankers.
*All loans subject to credit approval. Restrictions apply.
