There is No Free Lunch, but There Is a Strategy to Funding

You’ve worked hard and your business is buzzing.  Now you need capital to take it to the next level.


Editor’s note: This is part one of a two part article.

Your current banker is the best one to approach with a request for funds. He (no she) knows more about you than you realize. She knows you run a business that makes periodic deposits.  You may have a merchant account that assists you with payments.  She knows how much money runs through your accounts.

However, that is not enough to get the funds you need. Every banker will require  documentation: perhaps each banker has a slightly different format, but all bankers require specific information that you must provide to get the loan. It is not as bad as it may seem.  Most of the information is in your files.  There are only a few documents that you must prepare. The rest you just have to provide.

The following information will assist you in the process of accessing institutional capital.

Checklist of Documents for a Loan Application Package to a Bank for an Existing Business and Tips on How to Put the Package Together

Documents You Must Produce

1.  A Personal Financial Statement (PFS)

2..  Professional Resumes (CVs) for the Operating Team

3.  Source and Use of Loan Funds Schedule – Funding Request

4. Executive Summary (A Concise Business Plan)

5.  Monthly Cash Flow Projections for Two Years

Supporting Documents You Must Provide

  1. Two(or three) Years of Tax Returns (Personal and all Business Entities)
  2. Interim Financials for Current Year for the Business
  3. Schedule of Accounts Receivable- with Aging
  4. Schedule of All Business Debt – Including Payments Due and Loan Status
  5. Copy of Existing or Proposed Leases, or Sales Contract for the Business
  6. Documents to Verify Special Licensing or Zoning  Compliance
  7. Franchise Agreement (if Applicable)

Do not present the package until you have all the required documents. The package must contain all the relevant documents, plus any others specifically requested by the lender. You want a commitment, or an Letter of Intent (LOI), not just an indication of interest. And, try to avoid spending time on a full presentation until the lender has indicated that they would have an interest and an appetite that matches your financing request.

You many need the assistance of your accountant or a third party in order to compile the required information. If you have a relationship with a lender, discuss the loan possibilities with that person and then provide the documents noted in this memorandum in order to receive a quick response. Lenders may provide their list of required documents or their application form.  You will need to compile the materials in order to complete a bank application. Many first time commercial borrowers fault banks for not being timely in responding to a loan request. However, if you provide all the required information, you will get a quick answer.

If you are rejected by that lender do not be discouraged. You now have a package ready to contact other lenders. Not all banks fund all types of businesses. Seek local advice about which banks would be most responsive to the financial needs of your business. At your initial meeting with the loan officer, inform him or her that you are prepared to move your operating accounts to the bank if the loan is approved.

Documents You Must Produce

A Personal Financial Statement –(PFS)

Although the borrower is an LLC, an S Corp, or a partnership, a personal guarantee is required on all commercial loans. The guarantors will be all individuals who own 20% or more of a business entity.  A PFS is an integral part of every loan application.  It must be current (90 days or less), and be signed. If a husband and wife file their tax returns jointly, they may prepare one PFS.

Or, if only one spouse is involved in the business, it may be possible to prepare a PFS  for that individual. The PSF would reflect partial interests in all the assets and liabilities that are included on the tax return. You can use the PFS form provided by the bank (usually it is available on line) or use a generic form provided by the SBA.

Preparing an accurate PFS is the second hardest part of the loan application process, but perhaps the most important part. It is a snapshot of the personal strengths and weaknesses of the borrower. It will help the lender evaluate your global cash flow. They want to be comfortable that you are not taking on more debt than you can handle. Make certain you include any student loan debt.

Your Assets -Include on the PFS all owned assets – including ownership in the subject business or any other business interest. The net worth of your business may be the net worth of your business on a current balance sheet. Your business accountant will assist you in determining the net worth of your business. This may be a problem for lenders since borrowers often  carry their contribution to the business as a loan rather than as equity.

Foot notes will assist in clarifying this issue. Lenders look at financial statements and tax returns differently than the IRS. The most important thing is the profitability of the business. Include in the PFS only the percentage of the business owned by you.  Also include a schedule of any other assets that you own, including cash surrender value of a life insurance policy,  a pension fund or IRA, and real estate holdings at  market value..

Assets owned include cars, boats, art, jewelry etc. should also reflect current market  value.  The lender places little weight on these type of assets in the underwriting process, but they should be included. Also include any interest you may have in Trusts.

Do not overestimate the value of your real estate holdings; even if there is no equity in the real estate, be realistic.

Next- Income Liabilities, Source of Funds and more…

Marj Weber
Marj Weber
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 20 years: combining financial literacy workshops with one-on-one mentoring. Marj is currently President of Primed 2 Grow Inc. a company that provides access to capital for both existing and start up enterprises. She has provided term loans and working capital to hundreds of small business in South Florida. She was Chair of SCORE Miami Dade from 2010 to 2014 and served as a financial advisor for SBDC/FIU from 2014 to 2017. She also served as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has facilitated workshops under the auspices of Miami Bayside Foundation, Little Haiti Cultural Center and several local banks. She commenced her career as a real estate investment banker in New York.

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