Can You Bank on Bank Funding?

Can You Bank On Bank Funding

Every small business owner must overcome huge challenges, with funding often topping the list of hurdles.

But the process of getting small business funding through a bank to help your business grow is easier if you have a realistic assessment of your business’ current financial state and growth potential, while understanding the reasoning lenders use in deciding to make a loan.

What Do You Need To Help Determine Your Fundability?

Ideally you will have a written business plan, financial statements, cash flow projections, personal and business credit reports, tax returns and bank statements before you go to a bank.

What you actually need in terms of documentation for a loan varies greatly depending upon where you apply.  Major banks and government sponsored programs, such as U.S. Small Business Administration backed loans, typically require more extensive paperwork compared with alternative lenders, such as BFS Capital. But the information you pull together with these documents will help you to clearly see the amount that you need and what you can pay back.  

What Do I Need In My Business Plan?

Your business plan must be clear about your current state and your short and long term goals.   The most important part of the report is the one-page executive summary that explains your business, revenue model and details about how you will make a profit. You will also need to include financial data and competitive analysis.  For help creating this report, the SBA has a template available here.

How Do My Monthly Cash Flow Statements Help Assess My Business Needs?

The best way to figure out how much you’ll actually need to borrow is to create monthly cash flow projections so you can identify a specific amount with the necessary data to support your figure. Many lenders will use this information to analyze if the amount you request for the loan will be enough to help your business grow and if you will generate enough revenue to pay back the loan.  If you need help creating these projections, the web site Score provides a 12-month template that is easy to use.

What Are The Keys Factors That Lenders Consider For A Loan?  

Below are some of the factors lenders will review in order to determine if they will approve a loan:

  • Ability to pay back the loan: Lenders will assess your potential to repay the loan under the terms of an agreement.
  • Business Credit Scores and History: This a critical factor for lenders, as many have minimum requirements for all borrowers.  If the business has a separate tax ID and other factors, the business owner’s personal credit score may also play a key role in the lending decision.
  • Business Bank Account Rating: Information about your business bank account history, which is different from a credit score.
  • Business Details: Your fundability can be impacted by a number of factors, such as the structure of the business, location and many others. 

A Checklist of What You Need To Assess Your Bank Fundability

  • Business Plan
  • Cash Flow Projections
  • Bank Statements
  • Business and Personal Credit Reports
  • Tax ID Number and Tax Records For Business
  • Incorporation Records
  • Leases for Business
  • Other Legal Documents Pertaining to Business

Does It Sound Like a Lot of Work?

If so, you might want to consider financing through an alternative lender. Today, you can receive capital in as few as two business days, through a streamlined process that includes far less paperwork to get approved. And with traditional banks turning down up to 80% of business loan applications, alternative funding might be the best option for you anyway. A company like BFS Capital, can offer additional information on your available options.

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Alison Leon

Alison Leon is the Vice President of Marketing at BFS Capital. With over 13 years of experience at major financial institutions, including JP Morgan Chase, Capital One and Bank One, Alison understands the everyday needs of small business owners and the important role that financing plays in growing a business. Her content focuses on marketing strategies and resources for small businesses as well as tips on how to secure financing for any business expense. Connect with Alison on LinkedIn and Google+.