Chances are that the lender may "give" some on the terms. Keep in mind also that, while you're mulling over the terms, you may want to get the advice of your associates and outside advisers.
In short, try to get terms which you know your company can live with. Remember, however, that once the terms have been agreed upon and the loan is made (or authorized as in the case of SBA), you are bound by them.
The Loan Application-
Now you have read about the various aspects of the lending process and are ready to apply for a loan.
Banks and other private lending institutions, as well as the Small Business Administration, require a loan application on which you list certain information about your business.
For the purposes of explaining a loan application, this Aid uses the Small Business Administration's application for a loan (SBA Form 4 not included).
The SBA form is more detailed than most bank forms. The bank has the advantage of prior knowledge of the applicant and his or her activities.
Since the SBA does not have such knowledge, its form is more detailed. Moreover, the longer maturities of SBA loans ordinarily will necessitate more knowledge about the applicant.
Before you get to the point of filling out a loan application, you should have talked with an SBA representative, or perhaps your accountant or banker, to make sure that your business is eligible for an SBA loan.
Because of public policy, SBA cannot make certain types of loans. Nor can it make loans under certain conditions. For example, if you can get a loan on reasonable terms from a bank, SBA cannot lend you money.
The owner-manager is also not eligible for an SBA loan if he or she can get funds by selling assets which his or her company does not need in order to grow.
When the SBA representative gives you a loan application, you will notice that most of its sections ("Application for Loan"- SBA Form 4) are self-explanatory.
However, some applicants have trouble with certain sections because they do not know where to go to get the necessary information.
Section 3--"Collateral Offered" is an example.
A company's books should show the net value of assets such as business real estate and business machinery and equipment. "Net" means what you paid for such assets less depreciation.
If an owner-manager's records do not contain detailed information on business collateral, such as real estate and machinery and equipment, the bank sometimes can get it from your Federal income tax returns.
Reviewing the depreciation which you have taken for tax purposes on such collateral can be helpful in arriving at the value of these assets.
If you are a good manager, you should have your books balanced monthly. However, some businesses prepare balance sheets less regularly.
In filling out your balance sheet, remember that you must show the condition of you business within 60 days of the date on your loan application.
It is best to get expert advice when working up such vital information. Your accountant or banker will be able to help you.
Again, if your records do not show the details necessary for working up profit and loss statements,
your Federal income tax returns may be useful in getting together facts for the SBA loan application.
Insurance-
SBA also needs information about the kinds of insurance a company carries. The owner-manager gives these facts by listing various insurance policies.
Personal Finances-
SBA also must know something about the personal financial condition of the applicant. Among the types of information are:
- Personal cash position.
- Source of income including salary and personal investments.
- Stocks, bonds.
- Real estate.
- Other property owned in the applicant's own name.
- Personal debts including installment credit payments.
- Life insurance premiums and so forth.
Evaluating the Application-
Once you have supplied the necessary information, the next step in the borrowing process is the evaluation of your application.
Whether the processing officer is in a bank or in SBA, the officer considers the same kinds of things when determining whether to grant or refuse the loan. The SBA loan processor looks for:
- The borrower's debt paying record to suppliers, banks, home mortgage holders, and other creditors.
- The ratio of the borrower's debt to net worth.
- The past earnings of the company.
- The value and condition of the collateral which the borrower offers for security.
- The borrower's management ability.
- The borrower's character.
- The future prospects of the borrower's business.