What a Commercial Loan Lender Looks For

Your commercial loan lender wants you to succeed. That's why they're in business. When you make money, they make money. But they also want to minimize risks in any commercial loan they approve. Help improve your chances to secure business financing by paying attention to what your lender looks for.

Loan Payback

Your commercial loan lender is most interested in getting their money back. They'll first look at promising businesses, individuals with solid financial track records in both personal and business dealings, and business owners who are committed to making their business a success.

Financial Records

Business loan sources use various measures to gauge whether or not to issue your loan. The commercial loan lender may review your gross annual sales or revenues, balances in your checking account, the profitability of your business and how long you've been in business.

Cash Flow

Lenders looking at your loan proposal also take into account how much cash you have available. To purchase or refinance a business, this cash, referred to as equity, should be in the 20 to 50 percent range.

Collateral

Another yardstick your lender looks at is how much you have in the way of collateral to guarantee your loan. Collateral includes 401Ks, stocks, bonds, investment real estate and other assets that you may use as loan security on your signature.

Excellent Credit

To obtain your loan, the commercial loan lender looks at your credit - which must be excellent. Credit refers to your credit history and credit score and the overall financial health of the business. This business may be your existing business you wish to expand, one you wish to purchase, or a start-up. Personal credit items they'll look at (particularly if you're trying to start up a business and don't have an established track record) include personal credit card debt, personal loans, tax returns, liquid assets (including cash), and real estate holdings.

Personal Character

Factor in character as another measure against which your lender looks at your request for a commercial loan. The lender wants to know that you possess the sound judgment, experience or expertise, education and ability and have a strong character - before they'll give you the loan. Why is this? Lenders need to see you're capable of being a success in your business. If you are, they're more likely to see their money paid back.

Business Plan

No commercial loan lender will issue you the loan, especially for a start-up, without taking a look at your business plan. Typical elements in the business plan include cash flow projections by month for 24 months (and 36 for start-up businesses), current debt schedules and balances of loans outstanding, payment schedules, maturity and collateral that is readily available to the business.