Is Your Business Ready to Borrow?

All businesses need quick and easy access to additional working capital when the pace of your business starts increasing. As your business expands, the need to borrow becomes more apparent. A small business loan can help keep your daily operations moving forward and potentially fund new business projects. 

Before you borrow, understand the most important strengths of your business to share. Be confident when you present it to financial institutions you’re looking to start a banking relationship. Understanding working capital and how you want to use it can give you the empowerment you need to take that next step.

What is Working Capital?

Small businesses need cash on-hand to continue with their daily operations. Working capital is the liquidity that represents the difference between a businesses’ current assets and liabilities.  It is considered crucial because it plays an important role in the future growth of your business. By having working capital, it creates opportunities to finance daily operations such as inventory purchases, equipment needs, staff salaries, rent, and utilities. 

“Short term working capital is necessary for businesses to expand. They may need to finance materials in order to complete larger projects and then pay down the working capital line of credit once revenue is received. If they purchase equipment or vehicles regularly, they should have an equipment line of credit in place in order to expedite the funding of these purchases,” says Jane Amato, Vice President, Commercial Lending. An equipment line of credit is a pre-approved lending limit that can help alleviate unnecessary stress and be more flexible in the decision-making process.

What Lenders Want to Know About Your Business

• Background Information – A brief summary of when and how the business started, a biography of the ownership, business structure, mission statement, and where the business is located.
• Key Players & Major Customers – An overview of your management team with their experience, qualifications, and skills highlighted. A list of your major customers would assist potential lenders because it shows that you have steady income and stability. 
• Business Cycle & Operations – The ins and outs of your business matters to the lender you choose. Be prepared to explain the day-to-day operations and how you envision your business to look in the future. Based on your cash flow projections, describe how you plan to repay the loan and the term and interest rate you are anticipating.
• Purpose of the Loan – Lenders will want to know in detail how the capital will be used. Prepare a list of estimated expenses and explain how the loan will help support your business. Describe how you determined the amount of capital you need to borrow.
• Financial Documents – As a good rule of thumb, a business should keep updated financial statements, three most recent years of tax returns, and quarterly balance sheets. A current accounts receivable report would help lenders understand your business more from an accounting perspective.
• Business Plan – Be sure to explain your objectives, goals, strategies, and vision while also being realistic about the current state of your business and outside factors. Your business should be able to answer a lender’s questions about profitability, viability and target audiences.