07 Jan What to Prepare Before Meeting with a Lender
When you’re a small-to-medium-sized enterprise or a family-owned business, securing financing can be a pivotal moment to fuel growth, support cash flow, or invest in new opportunities. Approaching a lender prepared can mean the difference between getting approved or facing delays.
Here’s a comprehensive guide on what you should prepare before meeting with a lender.
Understand Your Needs and Goals
Before diving into your documentation, take a moment to clearly define why you need financing and what you aim to achieve with it. Understanding your financial needs and how they align with your business goals will help you communicate effectively with the lender and ensure you’re seeking the right type of funding.
Key Questions to Consider:
- What is the purpose of the loan (e.g., expansion, equipment purchase, working capital)?
- How much funding do you need?
- How does this funding fit into your overall business plan?
Financial Documentation
Lenders need a clear picture of your financial health to assess your loan application. Providing comprehensive and accurate financial documentation is crucial.
1. Tax Returns
Lenders typically require at least three years of business tax returns. These documents provide a historical overview of your business’s income, expenses, and profitability.
- Tip: Ensure your tax returns are complete and accurately reflect your business operations.
2. Profit and Loss Statements
Also known as income statements, these documents summarize your revenues, costs, and expenses over a specific period.
Provide statements for the last three years and year-to-date.
3. Balance Sheets
A balance sheet provides a snapshot of your business’s assets, liabilities, and equity at a given point in time. It’s a critical document that helps lenders assess your business’s financial stability.
Include current assets and liabilities, long-term assets and liabilities, and owner’s equity.
4. Cash Flow Statements
This statement shows how cash flows in and out of your business, indicating the business’s liquidity and ability to manage debt.
Include statements for the past three years and year-to-date.
5. Accounts Receivable and Payable Aging Reports
These reports break down outstanding invoices by age and help lenders understand your business’s credit and payment practices.
Include aging reports for both accounts receivable and accounts payable.
Supporting Documentation
In addition to financial documents, lenders need supporting documentation to verify your business’s operations and your individual credibility.
1. Bank Statements
Provide at least the last three months of business bank statements. This helps lenders verify your cash flow and ensure that the numbers in your financial statements match the actual cash movements.
2. Business Plan
A well-crafted business plan outlines your business strategy, market analysis, and financial projections. It demonstrates your understanding of the market and the viability of your business.
Include an executive summary, market analysis, company description, organizational structure, product line or services, marketing and sales strategy, and financial projections.
3. Legal Documents
Lenders might request various legal documents to verify your business’s legitimacy and obligations.
Examples of this include articles of incorporation, business licenses and registrations, contracts with third parties, commercial leases, and franchise agreements.
4. Resumes of Key Personnel
Lenders may want to assess the experience and expertise of your executive team. Provide resumes for key personnel showcasing their skills, experience, and role in the company.
Personal Financial Documentation
In some cases, especially for smaller businesses, lenders may request the personal financial information of the business owners to assess their financial health and creditworthiness.
1. Personal Tax Returns
Provide personal tax returns for the last three years for all business owners.
2. Personal Financial Statement
This statement details an individual’s assets, liabilities, and net worth.
Include personal real estate, investments, personal loans, and credit card debts.
3. Credit Report
Ensure you have a recent copy of your personal credit report. Be ready to discuss any blemishes or issues and how you have addressed them.
Prepare to Answer Questions
Lenders will have questions based on the documentation you provide. Anticipate these questions and be prepared with clear, concise answers. Common questions may include:
- How will you use the funds?
- What is your repayment plan?
- What are the risks and how will you mitigate them?
- How does the current financial health of your business support this loan request?
Final Touch: Presentation and Organization
The way you organize and present your documentation can significantly impact a lender’s perception of your business. Ensure all documents are accurately labeled, well-organized, and presented in a professional manner.
To leave the best impression, consider these tips:
- Create a Table of Contents: This makes it easy for the lender to navigate your documentation.
- Use Professional Binders or Digital Folders: Depending on whether you’re submitting hard copies or digital documents, ensure they are neatly compiled.
- Include a Cover Letter: Write a brief cover letter summarizing the purpose of the meeting and the key points of your loan request.
Conclusion
Being well-prepared before meeting with a lender shows that you are organized, serious about your business, and respectful of the lender’s time. It also increases your chances of securing the financing you need under favorable terms.
The more prepared you are, the smoother the lending process will be, paving the way for a successful partnership and future growth.