ments to determine if your company can and will generate sufficient cash flow to service new debt , with on time payments . Remember , the lender will be looking for documented evidence and assurance that a given loan can and will be paid on-time and in full .
A lender ’ s concerns are no different than yourown . If you were going to lend money to a friend or acquaintance , you would want assurances that the debt will be satisfied --- as agreed .
Collateral Collateral is another major piece of the financing pie . Lenders find comfort in using collateral to secure a loan . Remember , its all about lowering risk . The question will be asked ----- so you might as well prepare yourself . What collateral do you have , or will you acquire with loan proceeds , that is available to secure your loan request ? Examples of collateral include : real estate , inventory , savings , stock , equipment and motor vehicles .
For instance , a lender may secure a working capital loan with inventory and accounts receivable . In another example , a lender may secure an asset loan with the asset or equipment being acquired . In both cases , the lender would probably ask for a personal guarantee as well .
Lenders can be very creative in using collateral to secure a loan . Consider all of your options . To prepare yourself , identify available collateral , estimate its value and be prepare to provide supporting documentation to justify its worth .
Personal Guaranty It is almost a certainty that you will be asked to provide a personal guaranty , if you borrow money for a small business . It matters NOT , that your business may be incorporated .
Its all about lowering risk . A personal guarantee means that you are willing to pledge your personal assets to protect the lender , in a situation where you are unable to re-pay the loan .
Components of a Loan Package Loan packaging is not an exact science . In fact , loan packaging means different things to different people . A good package will tell a compelling story and answer most , if not all questions , a lender may have about your business and loan request . It will provide enough information and documentation so that your loan request is clearly understood and that your lender could discuss and defend it before a loan committee . There are three major components of a loan package , with some components containing multiple parts . Again , this is not an exact science and different lenders require different things . However , for our discussion and general purposes , we will focus on the following components : statement of purpose , business plan and financial statements .
Statement of Purpose The statement of purpose is a critical component of the loan package and is sometimes developed within a letter to a specific lender or is otherwise labeled the “ executive summary ” and is attached to the business plan . Since it ’ s the first thing the lender reviews , it is important that it be well written , informative and should include information
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