February  2004      Vol. 13, No. 2  REAP HOME PAGE  A publication of the Center for Rural Affairs    
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Business Loan Basics: Do You Know How to Prepare?
Before applying for a loan, be prepared. Answer these questions in advance to get a step-up in the process.

When your business needs financial assistance, these tips prepared by the Business Financing Symposium should help you know what to expect from a lender and how best to prepare.

ASK YOURSELF THESE QUESTIONS

  • How much money do I need?
  • What type of lender do I need? (bank, state or federal agency, venture capitalist or other investor, or nonprofit lender such as REAP)
  • What is the lender’s minimum and maximum loan size?
  • Can the lender meet my present and future needs?
  • What types of businesses will the lender finance?
  • What collateral does the lender accept?

LENDERS USE THE EIGHT “C’S” RULE

  1. Credit (must be good)
  2. Capacity (ability to repay)
  3. Capital (money going into the business)
  4. Collateral (your assets that secure the loan)
  5. Character (you)
  6. Conditions (economy, finances, anything that will affect your business)
  7. Commitment (your ability and willingness to succeed)
  8. Cash Flow (prove the business can support its debt and expenses)

QUESTIONS A LENDER WILL ASK YOU

  • How much do you want?
  • How will the loan be used?
  • How long will it take to repay the loan?
  • How will the loan be repaid?
  • What collateral do you have to offer?
  • How much are you investing in the business?

BEFORE MEETING WITH A LENDER

  • Call to find out the rules for business loans.
  • Is the lender looking for loans of your size and type?
  • Ask for a loan application to be sent to you.
  • Make an appointment.
  • Rehearse your presentation.
  • Remember – your first customer is the lender. Before you sell anything, you have to first convince the lender that your business concept has merit.

 Source: Business Financing Symposium
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