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What to know about a business loan

Edmond Life & Leisure - Jake Winkler

Jun 21, 2022

Jake Winkler answers questions about business loans

Small business lending: What you should know about the loan process

Q. What questions should you be prepared to answer before approaching a lender about a business loan?
Practice your elevator speech about what your business does and why you need a loan. Consult with a CPA to determine specific goals and what options might be optimal. Be prepared to answer these specific questions.

How will the loan help your business?
How much do you need to borrow and how will the funds be used?
Do you need a short-term or long-term loan?
How will you collateralize the loan?
What is your plan to repay the loan?

Q. What criteria will the bank use to evaluate your eligibility for a business loan?
Bankers are responsible for lending the money of the bank’s depositors and evaluating the ability to have it repaid. Personal character, the collateral offered and business capacity all figure into the analysis of risk, as well as the company’s financial history and background.

Q. Applying for a business loan often includes preparing an executive summary. What should it outline?
An executive summary should include your business’s plans and objective, along with a letter of introduction. Make your case in the letter to succinctly list your company’s history, plans for the loan and how it would be paid back, in addition to information about collateral. Ownership details, a personnel list, financial summary and operations overview are items to include, along with a marketing plan and balance sheet ratios with comparison to industry averages. A financial disclosure with future projected income and expenses will also be requested.
Be sure to include tangible plans for how the loan will be repaid from new income. Requesting a loan to satisfy existing creditors only perpetuates the debt cycle and underscores a situation in which the business is not generating enough income to repay the loan, a condition bankers are averse to lending additional funds to cover.

Q. What financial data will bankers request?
Honesty is the best policy, especially when it comes to disclosing financial assets. Bankers will often ask for all available financial records, including:

- A summary of the average amount of funds on deposit
- A list of investments, fixed assets or supplementary schedules giving market or appraisal value
- Notes on receivables and risks of collection
- Details on inventory, including price stability, aging and turnover
- Liabilities and reserves
- Information on the collateral offered.

Q. How can an accounting firm help you?
Your CPA or accounting firm can help you determine if you really need a loan as a next step for your business. Reviewing lending standards, forecasting based on business trends and preparing key ratios for developing trends, with personalized considerations, makes for a more informed process. Determining the size of the loan needed, along with a repayment schedule should also be among a CPA’s duties, along with preparing documentation and negotiating the terms of the loan agreement.

Jake Winkler, CPA, is a partner at Arledge, an Edmond-based public accounting firm. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.

This article contains general information only and does not constitute tax advice or any other professional services. Before making any decisions or taking any action that might affect your income taxes, you should consult a professional tax advisor. This article is not intended for and cannot be used to avoid future penalties that may be imposed by the Internal Revenue Service.

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