By Jerry Kroetsch
AVP, Commercial Lending Officer
When operating a business, you may find that a business line of credit or a business loan are options to consider when just starting out, looking to improve your balance sheet, preparing to expand and anything else you might need along your business journey.
With any lending request, the best way to qualify for a loan, is to prove that you have the ability to repay. Therefore, to qualify for a business line of credit or a business loan, you will need to have records of your financial history. There are many ways in which a lender will review and learn about your financial history. Here are the most important.
Credit Scores – Some lenders may check your personal credit score and your business credit score. Regardless of which scores are checked, it’s important to know and understand your credit score so you can discuss it with your business banker. Your credit score can imply how credit worthy you are to your business banker. Your score(s) can indicate how likely you are to repay your loan. Typically, a higher score will reflect a positive credit history, which may give you more borrowing power.
Personal Financial Statements – Your personal financial statement is basically a snapshot of your assets and liabilities. It is sometimes referred to as a balance sheet because when you subtract your liabilities from your assets, it will give your business banker a general idea of your net worth.
When detailing your assets, you will want to include:
- Cash in your bank accounts
- Brokerage accounts
- IRAs, 401(k), and other retirement savings accounts
- Investments
- Accounts receivable and other income streams
- Business inventory and equipment
- Land or real property
- Special items of value like antiques or classic cars
When detailing your liabilities, you will want to include:
- Credit card debt
- Car loans
- Mortgages
- Accounts payable and other goods or services purchased on credit
- Unpaid taxes
- Child support payments, if applicable
- Any other liens, like a small claim’s judgment
Business Tax Returns – You will need to present your last two years of business taxes. Your business tax returns will present the best picture of your business revenue. Once you present your financial statement and your business tax returns, your business banker will be able to determine your monthly or annual revenue requirements.
Length of Time in Business – Typically lenders like to see a business that has been in operation for at least two years. However, this is another reason why it’s important to have your tax returns and personal financial statements available. If everything looks stable, your lender may consider a business that is six months to a year old.
Your Collateral – To secure a line of credit or a business loan you would pledge something for collateral. Collateral is a form of security for your lender. The collateral is an asset that the lender can use to make up for lost capital in case your business defaults or stops making loan payments. The types of collateral most often used for a business loan include:
- Real estate
- Vehicles and equipment with serial number, make and model, title
- Valuation of the business (assets)
In some cases, loans can be made on an unsecured basis (without collateral), depending on the circumstances.
Letter of Intent to Proceed – Finally, your business banker will require a letter of intent to proceed that explains why you want to borrow money through a line of credit or a loan. They will also want to know how you intend to use the money and when. You’ll want to include the following information in your letter:
- Your name
- Business name
- Social Security number (SSN)
- Desired loan amount
- Loan purpose
- Business Tax ID (EIN)
Again, all these factors will help your business banker evaluate your ability to pay back the loan. It will also help to determine the maximum amount for which you will qualify when applying for your business line of credit and/or your business loan.
Kalamazoo County State Bank (KCSB) offers the Business Solutions you’ll need when you are just starting out, looking to improve your balance sheet, preparing to expand your business and anything else you might need along your journey. We’re first and foremost a community bank, we’ve kept the best of old fashioned, personal service and attention. The result is a comprehensive program that gives you the time and resources to achieve your business goals.
To learn more about one of KCSB’s business line of credit and business loans, see Your Guide To Business Banking, call 269.679.5291, or visit a branch office. See https://kcsbank.com/locations to find a location most convenient for you. Start your business journey with your KCSB business banker today!
