Preparing Your “Ask”
As written for Fargo, INC
When you are in business, it is inevitable that at some point, you will likely need to seek out and apply for a business loan.
Maybe it is for the purchase of some equipment, perhaps you are growing and need to buy a building, or it is possible that you are a seasonal business than needs a revolving line of credit to cash flow during slow times. But where do you even begin?
Whether you are going to be visiting with a bank, credit union, investor, or any other type of entity that can provide financing or investment dollars, you are going to need to prepare a package of information about your business, its financial situation, its future plans, the owners, their financial situations, and information about why the financing is needed – in other words, “Your Ask.” This packet will provide the foundation for the discussions to show the viability of your business and whether or not you have the ability to pay back the loan.
Here is a list of items that you should assemble PRIOR to visiting with your lender about your financing needs.
FINANCING PACKET CHECKLIST
- Business Information:
- 2 Years of business tax returns & year end financials (income statement & balance sheet).
- Current, year-to-date financials – income statement, balance sheet, aging accounts receivable and aging accounts payable.
- Current business debt schedule – list of all loans with original amount, current outstanding balance, monthly payment amount, interest rate, term and collateral/security for the notes.
- 2 years of projected income statement with list of the assumptions you used to create the forecast. The assumptions are the details behind the numbers like why are you expecting increase sales – new products/services, price increases, increased market share? Are you expecting increases in expenses – additional staffing needs & related costs, increased or decreased costs of goods, implementation of a specific sales/marketing strategy & costs, basically why any specific expense line items are increasing or decreasing significantly from previous periods. Do you have any capital expenditures planned that will impact cash, depreciation, etc?
- Business plan – this is the story of your business and tells about the company structure, products/services offered, marketing plans, operational strategies, management & organizational structure, capital expenditure plans and any established objectives that you are working toward as a company. This may not be required for existing businesses but is definitely beneficial in supporting your plans and financing needs.
- Owner information:
- List of all owners of the business and their percentage ownership, then for each provide:
- 2 years of personal tax returns.
- Current personal financial statement.
- Copies of Driver’s Licenses.
- If there are any personal credit issues (prior or current bankruptcies, late payments, collections, divorces, etc) be sure to disclose up front to prevent delays in the application process.
- Your Ask:
- How much do you need? And what will you use if for? Provide supporting documentation such as purchase agreements, quotes/estimates, printouts from websites showing prices, etc.
- When do you need it?
- How much cash do you have available to put as a down payment toward the financing request?
- Show how the financing will impact your business and its financial performance going forward. Will it increase sales, reduce operating costs, improve efficiencies, cover inventory buildup prior to seasonal sales peaks, etc?
When you have a packet like this assembled and you walk into your bank or other lending institution, you will definitely be several steps ahead of the norm. This will allow you to have productive conversations from the beginning about your needs and how to address them. Depending on how much you need, what you need it for, how much you have available for down payment and your historical performance coupled with your future plans will provide the foundation for your loan request. It allows your lender to easily see the current situation and any challenges that may need to be addressed.
The best lenders will always be honest & upfront with you about what they see and any concerns that they may have. They will provide you with direction of what additional information is needed or anything that needs to be addressed to move forward. They will be resourceful in helping find the best financing package for your business as there are so many incredibly beneficial programs available today to help with terms like down payment amounts, interest rates, length of term and more.