November 30, 2015

How to Prepare a Business to Borrow

How to Prepare a Business to Borrow

Funds to start and run a business can come from various sources – including from the owner’s (or owners’) own pockets, from other investors or even from third-party lenders.

While there may be special steps that business owners need to take when looking for investors, when trying to secure a business loan from a financial institution, taking the following steps first can help position the loan application for approval.

5 Steps to Take before Applying for a Business Loan

  1. Review your credit reports – This includes both your personal credit report, as well as the credit report for the business. Lenders will be closely reviewing both of these credit reports when considering whether to issue a loan to your business, so you will want to be sure that you/your business have good credit before you spend time, money and other precious resources completing the business loan application.
  2. Fix any errors on this report – If you notice any mistakes or errors on your personal or business credit report, get these fixed prior to applying for a loan to ensure these reports accurately reflect your credit history. While you may need to directly contact a credit bureau to correct errors related to personal identifying or contact information (like your SSN or your business’ address), you will likely need to directly contact a creditor if the erroneous information is related to debts noted on these credit reports.
  3. Prep the necessary supporting documentation – If your personal or business credit report shows more than one or two late payments or delinquent accounts, it may be necessary to provide some supporting documentation, explaining just why these issues occurred. This is because lenders may be willing to overlook some late or missed payments if prospective borrowers can verify that these issues were related to some isolated incident (like a divorce or illness), rather than a pattern of financial irresponsibility.
  4. Determine how much equity your business has – While lenders will not generally want to issue loans to business owners (and businesses) with bad credit, they will also typically be reluctant to loan funds to businesses that lack sufficient equity. In fact, the average lending institution will want to see that a prospective business borrower does not have debts/liabilities that exceed four times the amount of equity in the business. If the business lacks equity, it may be necessary to invest some of your own funds (or look for other investors) to boost the equity prior to applying for the loan.
  5. Prepare the collateral or find a co-signer (if needed) – This can be an alternative for businesses that lack equity, as lenders may still be willing to issue a loan to these businesses so long as the owners are able to put up sufficient collateral or another party is willing to co-sign the loan.

Contact a Denver Business Attorney at Downey & Associates, PC

For experienced help forming a business or resolving any business legal issues, contact Denver Business Attorney Thomas E. Downey by calling us at (303) 813-1111 or by emailing us using the contact form on this page. From our law offices in Centennial, we serve clients throughout Colorado and the U.S.

Categories: Business Financing