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How to secure a commercial loan: a lender’s inside scoop

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From bakers and brew masters to dentists and doctors, all business owners have one thing in common – they all need money. That fact is true regardless of the stage: starting, expanding or continuing their operations. Securing financing for a business can be one of the most overwhelming tasks an entrepreneur will ever face.

Lenders ask the same questions and look at certain criteria when evaluating loan requests no matter the amount of money a business owner needs.

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What’s the Plan?

Lenders want to know how much money will be personally invested in the business, how much money the creditor is being asked to fund and how the money will be used. For a startup company, you will need to present more than the basics. You’ll need to show a business plan, giving the opportunity to answer the aforementioned questions as well as the following:

  • Who will own and operate the business?
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  • What experience and/or qualifications do you have to operate the business?
  • What will the business sell/provide?
  • Who is your target market?
  • What is your marketing plan?

For a company that has already been in business two or more years, lenders will require current balance sheets, profit and loss statements, and interim balance sheets. It’s a good idea to bring personal tax returns and financial statements, as well.

Money Makes the Business World Go Round

Once the lender has reviewed your business plan and expertise, they will move on to the money. For a startup, the first question a lender will ask is how much money is needed to start the business and make it profitable. Think about working capital such as inventory, real estate, equipment and furniture.

The next question is how much money will you personally contribute to the business? Actual cash investment by the business owner is necessary. An existing business will need to present its current balance sheet to demonstrate how much has already been invested and how the money was spent. All of this information will be reviewed to determine how much actual cash investment remains after paying out expenses and providing a living for the business owner.

These questions will be evaluated by the lender to determine if the business will operate soundly, that the debt burden does not place unreasonable demands on the profits of the business to repay the debt, and that you have enough capital at risk to keep you committed to the success of the business.

The Payment Terms

The biggest challenge business owners face when seeking a loan is showing the lender how and when they will pay the money back.  This is the chance to prove to the lender that your earnings will be enough to repay the loan.

To accomplish this goal, existing business owners should bring historical operating statements to showcase prior sales, expenses and profits. If you’re new to this, provide projections of sales, expenses and profits for the next two to three years, and an annual budget of cash expected from sales. Industry and market research data can serve to back up your projections.

Borrowing money is all about convincing the lender that you have the capital needed to succeed, the ability to repay the loan, the character and skill to implement the plan and the collateral to serve as backup. When entrepreneurs clearly understand the process and questions a lender will ask, they are adequately prepared to go out and secure a loan that will help their business succeed.

For more tips to prep you before your meeting with a lender, check out this earlier blog post: The 5 C’s of Credit.


Michael Rosales is senior vice president and small business banking manager at UMB Financial Corporation. Mr. Rosales joined UMB in 2005 as part of the founding crew of the Small Business Banking Department. He manages a group of associates who process requests for small business loans. Mr. Rosales can be reached at Michael.Rosales@umb.com.

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