HOW TO PREPARE A LOAN PACKAGE
Information provided by the Small Business Administration
Small business owners who are interested in borrowing money to start , grow or expand their businesses need to know ( 1 ) how to prepare a loan package for a lender ; ( 2 ) understand how a lender will evaluate their loan request , and know where to ( 3 ) access resources that can assist them in preparing a loan package . “ Full disclosure ,” that is , candid facts about borrowing money also must be understood by the prospective borrower . Knowing what a lender will need to know about a loan request , how to comply , the components of a typical loan package and how to put the materials together in a meaningful way is essential .
Full Disclosure In the spirit of full disclosure , several important issues need to be addressed upfront .
• There is no such thing as 100 % financing . You will be required to put money into the business , before a lender will provide financing . In some cases , some lenders will recognize “ sweat equity ” as a contribution to owner ’ s capital .
• Your credit history is important ! If there are any credit issues that can be remedied , before meeting with a lender , do so . A lender may be able to make exceptions if you can document that a negative credit report was due to circumstances beyond your control . If this applies , include a detailed written explanation with supporting information in your loan package .
• A lender will probably ask for a personal guaranty , even if you are incorporated . It is unlikely this can be avoided .
• There is no such thing as a government grant for individual small businesses . Contrary to what some unscrupulous sales pitches will suggest , there are no government sources , including the SBA , that provide free money for opening or growing a for-profit small business . If it sounds too good to be true , it probably is .
• SBA does not lend money directly to small businesses , for any purpose , other than disaster assistance . Rather , SBA is a guarantor . It guarantees loans made by lenders to small firms . SBA provides a level of security to lenders , so they will provide financing to small businesses who might otherwise not be able to obtain financing from a lender .
Getting a business loan is an age-old problem . Most entrepreneurs find it to be one of the greatest struggles they face . Clearly defining the purpose of a loan request is critical . A lender will review your financial requirements based primarily on two types of capital infusions , working capital and growth capital . ( 1 ) Working capital is used to meet fluctuating needs that will be repaid during the company ' s next full operating cycle , generally one year . ( 2 ) Growth capital is used to meet needs that 27