Managing a Small Business: Qualifying for a Business Loan


Managing a Small Business: Qualifying for a Business Loan

As a consultant I have many clients ask me how to apply for or qualify for a business loan.

Most banks and lending institutions that deal with start-up businesses ask the following questions and require the following information when reviewing a loan application.

The Owner or Officer

Character –     Do you pay your bills on time and take on debt responsibly?
Capital –          Do you have a reasonable capital investment of at least 20% of the loan amount in the company? What risk are you taking?
Collateral –      Do you have collateral (Varies by industry) that will hold its value through the life of the loan?
Capacity –        Do you have the capacity to manage the business? Have you worked in this industry before?
Credit History – Do you have a good credit history? Is your FICO credit score at least 650? Do you have any bankruptcies?

Business Plan Content

Conditions –     Are market conditions favorable to the success of the business? Is the market growing or declining for your type of business?
Financials –     Are your Pro-Forma financial projections (2 years Month to Month Cash Flow, 3 years Income and Balance Sheet) in line with industry averages as far as growth rates, percentages, and ratios? Does you projected cash flow statement demonstrate positive cash flow with at least a 20% reserve against each months fixed expenses? Have you planned for adequate working capital (at least 3 to 6 months)?
Management – Do you have a strong management team? Do you and your management team have experience in the industry?
Competition –  Have you adequately identified your competition and determined how you are going to compete?       
Market –           Have you clearly identified your market (customers) and identified what value you are bringing to the marketplace and/or what customer needs you are fulfilling? Have you setup an advertising budget and identified your media mix?

Most banks and lending institutions require the following information from an existing business plus the same owner or officer information as above.

Financials –     Previous 12 months Cash Flow Statement demonstrating positive cash flow with good cash flow management and Fiscal year-end Business Financial Statements for the last 3 years.

Balance Sheet and Income Statement for the Interim Period.

Schedule of all Business Term Debt.

Accounts Receivable and Accounts Payable Aging Reports within the last 45 days.

Copies of bank statements for the last three months.

Business Federal Tax Returns for the last three years including all schedules.

Personal Federal Tax Returns for each owner, partner or stockholder for the last 3 years.

Other documents required vary and may include, where applicable, Articles of Incorporation, Partnership Agreements, Fictitious Name Filing, Franchise Circulars and any Purchase Agreements if purchasing an existing business.

I know it sounds a little overwhelming, but our business consultants work in this world on a daily basis. We will work with you in preparing for the loan process, increasing your chance of successfully starting, running, and expanding your business.

If any readers have comments or are interested in specific business issues and would like to see an article addressing them please contact me via email at

I hope that this was helpful to some of you. Next time we will discuss what goes into a business plan.

Paul Nolta is a Business Consultant with the Inland Empire Small Business Development Center, a non-profit organization that provides free consulting services to small businesses in the Inland Empire. The SBDC, under contract with the City of Temecula’s, Temecula Valley Entrepreneurs Exchange provides free consulting services for businesses and citizens of Temecula Valley. Paul can be reached at 951.781.2345.