Most business owners begin their companies using personal money they have saved up or using what personal credit they have access to. While this may be acceptable to the business owner, it is full of risk. It is worthwhile to investigate other means of obtaining financing for the company. Banks aren’t all that anxious to lend money to small businesses, but it doesn’t hurt to approach them to obtain a loan in the name of the business. It is good to understand how to fill out a business credit application.
An application will require you to fill out the basics like the name of the business, address, phone number, e-mail address, etc. It will also ask what type of company you are: a sole proprietorship, partnership, LLC, etc. It is a good idea to change the structure of your business to reduce liability and tax payments. Then you will be asked to describe your business. You will have to indicate how your business falls into the NAICS code (North American Industry Classification System). You can go to www.naics.com to understand this system and to determine how to classify your business. The lender will want to know what type of products and/or services your company provides to produce revenue. They will want to know the markets your company deals in and the type of customer you attract.
Then you will be asked for your company’s financial information. They want to know the banks your business deals with, the account records, profit and loss statements, balance sheets, etc. It is important to be specific with the current and historical figures of the business as opposed to estimates. Also part of this information is amount of inventory, employees on the payroll, company assets and debt, etc. Be honest in all figures that are asked for.
The lending institution will inquire if you have collateral to put up against the loan or if some entity will guarantee it. This will have a big effect on loan approval depending on the credit strength of the guarantor or the value of the collateral. In this instance it is a great idea to bring a financial advisor into the mix to help you determine the best way to secure the loan you are requesting.
Often three years of past tax records will be requested in the loan process. This also applies for any guarantor of the loan as well. Add three years of balance sheets and financial statements for the business as well as projections on the company’s performance if the loan is approved.
There may also be questions that need answering that apply to state and/or federal laws. As with everything else, be honest in your answers. Remember to review and check all of the information that you put down on the application or submit with it. Don’t forget anything that is requested. Do not forget to sign the application!