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Oscar Dominguez: The ABCs of getting a small-business loan

Posted: July 24, 2009 9:02 p.m.
Updated: July 25, 2009 4:55 a.m.
 
Obtaining a loan in this economic climate may seem difficult.

However, Santa Clarita Valley business owners should keep in mind that financial institutions are in business to provide loans.

While each institution may vary in its loan offerings, requirements and terms, here are several general tips that may help you prepare for the small business loan process and help boost your appeal as a viable loan candidate.

The first step in the loan process is preparing the necessary application package requested by the lender.

This may include: a personal financial statement and tax returns for each owner; several years of tax returns for the business; and a current business balance sheet and income statement.

To help expedite the loan process, consider including a list of your current debts with rates, terms and payments.

In addition to the application package, a thorough business plan helps support your request for financing.

A business plan is a formal statement that provides a comprehensive overview of your business, its goals and a road map for achieving those expectations.

Your business plan should include: an executive summary that encapsulates the plan's main points and serves as a window into every facet of your business; a market analysis offering an overview of your industry, target market and competitors; a company profile including a summary of your company's industry and a description of the elements that will make your business stand out; a description of your management and organizational structure; the marketing and sales strategy for the business; a services or products description; and financial information including the requested loan amount and your company's current and forecasted income statements, balance sheets and cash flow statements.

In addition to preparing a business plan, consider these strategies before seeking a small-business loan:

n Cultivate a banking relationship early. By introducing yourself and your business (if already established) to your banker early on, you can build a foundation upon which the banker can later draw to make a determination about a loan.

n Preparation is key. Take the time to anticipate questions a lender may pose while you are seeking a loan. Clear, well-researched answers could tip the scales in your favor. Projecting self-assurance and optimism is important when meeting with a lender.
 
n Check your credit. Since credit history is an important indicator of credit risk for lenders, it may be wise to obtain your credit score prior to seeking a loan. Under federal law, the three major credit reporting companies - Equifax, Experian and TransUnion - are each required to provide one free credit report to consumers each year.

n Create a cash-flow analysis. Consider preparing a cash-flow analysis - a forecast of expected inflows and outflows of cash for your business - for each month for the next year.

Since cash flow is considered the lifeblood of your business, this piece of information is typically an important consideration for lenders.

n Stick to the facts. Honesty is crucial to your credibility as a loan candidate. Refrain from providing over-ambitious projections that may sound good, but can't be verified. Lenders base many of their decisions on facts, previous history and supporting data.

Oscar Dominguez is vice president and branch manager of the Stevenson Ranch branch of Union Bank. His column reflects his own views and not necessarily those of The Signal.

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