Starting a New Business
Data Generally Needed For Lenders

  1. Clearly define your business idea and be able to succinctly articulate it. 
  2. Provide supporting information on character and integrity; i.e. education, resume, credit history. 
  3. Experience in proposed industry. 
  4. Personal financial statement and cash flow within 60 days for all owners of 20% or more and guarantors. Include cash or assets to be invested or offered as collateral. 
  5. Copy of complete individual tax return for the past three years for all owners of 20% or more and guarantors.
  6. Satisfactory credit Provide written explanation of derogatory items. 
  7. Accurate estimate of project cost including construction or build-out, equipment and furniture, inventory, start up costs and working capital for start up period to cover fixed and variable expenses. 
  8. How much of the project cost will come from equity funds? Lender is required to verify source of these funds. 
  9. Collateral:
    · All business assets will be taken as collateral
    · Owner must be willing to pledge personal assets if required
    · Lack of personal assets does not prevent approval of loan
  10. Estimates of profit and loss statements, balance sheet, and cash flow by month for first year and then annually for second and third years. Provide written assumptions supporting projected sales and expenses. Project first year sales and costs for most likely and worst cases to assure adequate funding. 
  11. Legal structure and organization of this business. 
  12. If business is a franchise, provide a copy of franchise agreement and Uniform Franchise Offering Circular including franchisor's financial statements. Indicate if franchise is listed on Franchise Registry (www.franchiseregistry.com) 
  13. Terms of proposed lease - Final lease, including options, must be for term of loan. 
  14. Business Plan (see attached outline). 
  15. Fill out lender's application forms completely

    Greatest Problems
    1. Investment - Generally the amount of equity injection will depend on the industry risk and the lender's policy. Some types of business require a higher investment, i.e., restaurants (high build out cost and failure rate) and service business (low collateral). 

    2. Collateral - Dollar amount of collateral on a liquidated basis should be equal to or greater than the amount of the loan. The business owner may pledge personal assets which are not being invested in the business as collateral, i.e., CDs, stocks, real estate, note receivable. Homestead and retirement accounts cannot be pledged.

    3. Repayment Ability - Cash flow analysis by month must show ability to repay the loan at the initial interest rate and at higher rates (most loans are floating rate). Living expenses must be covered in the repayment plan. Debt coverage ratio must equal or exceed 1.25 (monthly net income depreciation divided by loan payment).

    4. Management Ability - Business owner must show the ability to operate the business.

    5. Credit - The business owner must have good credit.

    6. Insufficient capital - The business owner sometimes overestimates sales growth or underestimates operating expenses and the business fails for lack of operating cash flow.

    7. Defining assumptions used in projections