Business is great, customers are excited about your product but you need more capital to service all of your new accounts. It’s time to think about bank loans to expand your business.

What to consider when applying for a business loan to expand your business

Start early! Banks are going to want to see two years of financial statements. Now is the time to discuss your upcoming financing needs with your accountant. Your business wants to show the most accurate picture of your financial health to obtain the most funding at the optimal rate.   Strategies to bonus down or tax manage your income may not be appropriate when getting ready for financing. Now is the time to clean up your financial statements.

Prepare a business plan for your expansion with a narrative and realistic projections. Most lenders are asking for a three-year projection with a monthly plan for the first 12 months. Start with your projected business levels and ensure the business can support the financing.  

Banks are motivated to grow their loan portfolio and are actively looking to lend to the right businesses. Bank loans can be obtained for Real Estate, Leasehold Improvements, Machines, Equipment, and sometimes for Working Capital.  

Assets are the easiest to borrow money for. An asset such as a truck or car have established and competitive lending practices; vehicles are a known quantity and lenders know almost exactly what the depreciated value will be. Specialty assets may be harder to borrow for and your lender may ask for more than 25% down. Manufacturers can usually put you in touch with lenders who specialize in equipment financing.  

There are lending programs for inventory, equipment, accounts receivable and leaseholds. When a lender can take security against an asset, they’re going to feel the most secure.  

General nonspecific loans are going to be the toughest to get approved for. The lender will be looking for a loan-to-value ratio to satisfy their underwriters. Personal guarantees may be required.  

In general, a bank or lender is going to consider your profitability, your experience, your existing asset  & debt levels, and your ability to service the loan. They may consider your personal credit rating as well as your personal assets and ability to backstop the business.

Check out our article Apply for your First Business Loan for more information.  

Consider your ratios. Check out our article How much debt is right for my business?

Let’s talk about your expansion plans and how we can help. Give us a call to set up a consultation to talk about your business goals.