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Can I qualify for a loan?
Whether you are applying for a Pre-Qualification Program loan, a regular SBA loan or traditional bank loan, there are certain factors that improve your ability to obtain financing.
Do you have a good personal credit history? Yes______ No______
Research indicates a good personal credit history is one of the most important factors in identifying borrowers who will repay their commercial loans. Many loan programs require perfect personal credit in order to qualify.
If you do not have a recent credit report, you may order one by calling Equifax: 1-800-525-6285 -- Experian (formerly TRW): 1-888-397-3742 -- Trans Union: 1-800-680-7289.
If you have a credit problem which can be explained by a one-time incident such as medical problems, provide information on the problem and how it has been corrected.
If you have had a bankruptcy in the past 10 years, or have slow payments, collections, or judgments, it may be difficult to obtain financing at this time. If a poor credit history can be explained by a particular incident, supply information on the situation and how you attempted to repair the past credit problem. If you have had a consistent credit problem, you will need to "repair" your credit history. Contact a credit and debt counseling service in your community for assistance.
Have you filed and paid your personal and business income taxes? Yes______ No______
Lenders and government loan programs require an individual and small business to have met their tax obligations for both filing and paying taxes. For SBA guaranteed loans, a tax verification of business income tax returns is obtained from the IRS before a loan is closed.
Can you demonstrate your business has the ability to repay a loan? Yes_____ No_____
(For existing businesses) If the business is profitable, are profits sufficient to repay the proposed loan? If a business is not profitable, it becomes very important to prove how it will be profitable in the near future in order to service the proposed loan. Small Business Development Centers (SBDC) located in your area conduct training and provide individual counseling to assist you in this process. If you are unable to locate a SBDC in your community, please call the SBA at 904-443-1900.
(For start-up businesses) It is very important you provide sufficient data on comparable businesses and/or industry statistics to justify your revenue and expense projections. This is a primary part of your business plan. SBDC training sessions and individual counseling can assist you in preparation of your business plan.
Does your business have a positive net worth? Yes______ No_______
The net worth for existing businesses should be positive. If there are loans from shareholders on the balance sheet and you are able to subordinate these (not pay the shareholders) while you repay the proposed bank loan, you may consider those loans from shareholders as equity.
Is your business carrying too much debt? Yes_______ No_______
(For existing businesses) Profits for businesses carrying too much debt will be required to pay loans and not be available to increase retained earnings in the business and finance future growth. Therefore lenders and the SBA will review the current level of debt and the level of debt including the proposed loan. Banks often look for a debt to net worth ratio of 4 or less (total liabilities divided by equity). SBDC counselors can assist you in assessing your debt situation.
Do you have enough capital to start a business? Yes______ No______
(For start-up businesses) All SBA loan programs require business owners provide equity for the business. The equity contribution by the owner is an indication of confidence in the business, it’s future growth and profitability. Some SBA loans require only a 10% capital injection, while others require 30% and in some cases more.
Do you have collateral to secure a business loan? Yes______ No______
Business and personal assets can be considered collateral. The SBA will consider a secondary source of repayment, in some cases. For collateral purposes most assets are valued at less than face value. The value of assets for collateral purposes depends on the type of asset. Although the SBA loan program guidelines state collateral can not be the only factor leading to a denial, the more collateral available, the more likely a loan application will be favorably considered.
Are you willing to personally guarantee a loan? Yes______ No______
All owners of 20% or more of the business are asked to provide a personal guarantee in order to obtain an SBA guaranteed loan.
Does your business have managers and advisors capable of managing your business profitably? Yes_______ No______
(For existing businesses) As businesses expand, they need more sophisticated management as it relates to strategic planning, marketing, recordkeeping, inventory control, and personnel. If there is a part of your business where you need assistance, we strongly recommend that you attend one of the SBDC's entrepreneurial training classes, meet with a SBDC counselor or contact one of the many resources in your community.
Do you have experience in running your own business? Yes______ No_______
(For start-up businesses) For a new business, it is important the business owner demonstrate he/she has industry and/or entrepreneurial experience. If you have never owned or operated a small business, we strongly recommend you attend one of the SBDC's entrepreneurial training classes.
STOP! If you can not answer "yes" to all the questions above, you may not be adequately prepared to apply for financing at this time. We suggest you evaluate the needs of your business and take advantage of the SBDC training and counseling available in your community.
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