This week we are continuing the discussion on lending and how to get funding for your business. If you’ve been following along the last couple of weeks, then you probably have an understanding of what lending path is best for your business and what it’s going to take to qualify for that funding. The next part actually involves preparation for this process by gathering all the necessary information you’ll need for your lender.
So, what information do you need?
Of course, you’ll need to have your basic information like your address, EIN number, and articles of incorporation. And as I’ve mentioned before, credit is always going to be considered so you want to ensure that your credit is positioned well for funding. Beyond that, the way to prepare your business for funding depends on the path that you choose, whether it’s credit-based, revenue-based, or asset-based.
Preparation for Credit-Based Funding
Credit based funding is going to require the lender to look into 4 factors: Derogatories, Utilization, Age of File, and Inquires. In order to have these all lined up to receive funding, you’ll want to clear any derogatories off your credit, make sure your credit utilization is low, preferably below 30%, and that you have a minimal amount of inquiries on your credit report. Remember, banks want to lend to people who don’t look like they need money so having a lot of inquiries has a negative effect on your eligibility for funding.
Preparation for Revenue Based Funding
Revenue-based funding requires proof through documentation that you have revenue coming in now or in the future. So, you’ll want to make sure that you have all the necessary paperwork together. The documents you need will vary based on the lending product you’re looking for but typically, you’ll at least need to have 6 months’ worth of bank statements. It’s important to keep in mind that your bank statements need to look professional, so it’s a good idea not to use your business bank account for any personal items. Keep everything business-related rather than using your business account to order dinner or pay for your streaming services. As odd as it sounds, those types of transactions could determine whether you receive a $20,000 loan versus a $50,000 loan just based on your spending habits. In addition to bank statements, you’ll also want to have your financial statements such as your P&L statements, monthly balance sheets, and business tax returns. If you are considering obtaining a purchase order or invoice factoring, remember to have a signed copy of the invoice for your lender as well.
Preparation for Asset Based Funding
Since Asset Based Funding involves using an asset as collateral, you’ll want to make sure you have specific information about said asset. For example, if you’re using equipment as collateral such as your vehicle, you’ll need to have the VIN number, current mileage, etc. The lender will also want to see a picture of the equipment. If you’re pledging real estate as collateral, you’ll need to have the address of your lender. If you’re going after a stock loan, you’ll need a brokerage statement from your firm showing what stocks you’re wanting to pledge.
It’s important to remember that all documents needed for the lending process MUST be recent documents. You’ll get nowhere using old bank statements, financial statements, etc. and it will only take more time to get the funding you’re after. While it may seem like a lot of information to gather, having everything prepared ahead of time is going to speed up the process for you so you can get the funding you need for your business quickly.
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