The truth about bankers is that we love nothing more than helping people turn their dreams into reality. We entered this line of work to help others reach their financial goals and find their individual path to success. For many, that means opening and running a successful business.
For business owners who are ready to take their company to the next level, we’ve provided some insights into how to prepare for a business loan, including an overview of the process and what to expect during each step of the way.
Preparation Is Pivotal
Lenders evaluate the financial strength of your business to determine whether they can confidently extend credit. By understanding these expectations and preparing in advance, you can significantly improve your likelihood of approval.
When applying for a business loan, you should be prepared to provide a range of financial data and supporting documentation. Lenders will also review your personal financial position to assess overall stability and your ability to support the business if needed. Maintaining accurate, up-to-date financial records is essential. Investing in tools such as QuickBooks can help keep your information organized and accessible, demonstrating to lenders that you are proactive and effectively managing your company’s financial health.
Small Business Lenders Will Look At:
- The last two years of both business and personal tax returns
- Business financial statements, which are comprised of an income statement and balance sheet:
- Profit and loss/Income statement – review and track your income and expenses for a specific amount of time, usually a quarter or fiscal year
- Balance sheet – This is a list of assets, liabilities and equity for your company, detailed at a specific point in time
- Ongoing expenses – any costs your business incurs, such as overhead costs
- Personal financial statements – you will need to provide a personal financial statement listing all your personal assets and liabilities, including:
- Assets – cash or cash equivalents, property and real estate, accounts receivables, cash-value insurance policies
- Liabilities – a complete list of your personal debts and financial obligations like mortgages, loans and accrued expenses
- Collateral – in the loan process, collateral is defined as an asset that a business owner could use to help secure financing, such as:
- Accounts receivable
- Inventory
- Real estate
- Vehicles
- Equipment
- Personal credit score
- Your relationship with your lender
- Build and develop a relationship with your lender. It’s important that they not only know your business, but that they get to know you as an individual.
- Request to meet with your lender regularly to review your financial statements and discuss your business’s future
The One-on-One Conversation
Now that you have a better understanding of what is needed for a small business loan, you should have an in-depth conversation with your lender about your loan request. Every business is different and so is every loan. Your lender can evaluate your business and financial goals to help you determine the appropriate loan structure to meet your needs. You will then complete an application and provide the necessary financial documentation. Your lender will also want to visit your business to see the operations, real estate and inner workings of your company.
Once you’ve met with your lender and submitted your application, the bank will pull your credit and begin a comprehensive underwriting review. In most cases, you can expect a decision within 2–5 business days. After a decision is made, your lender will guide you through the next steps. Funding timelines typically range from 10–45 days, depending on the loan type, and you should be prepared to provide additional documentation as needed.
While this overview doesn’t capture every aspect of the lending process, it provides a solid foundation for what to expect. By understanding your lender’s requirements upfront, you position yourself more effectively and set the stage for your business’s next phase of growth.
Chris LeFever is director of Small and Medium Business – Community Markets at UMB. In this role, he sets and supports the strategic and sales direction for business banking across community markets in Illinois, Iowa, Wisconsin, West Texas and New Mexico. He also focuses on developing bankers in UMB’s small and medium business segment and works to deliver UMB products and services through technology and value added relationships.
