Accessing Capital for Your Small Business in 2025
It’s National Financial Awareness Day, what small businesses need to know in this ever changing economic climate.
This article will address the requirements and the process if a company needs to access capital for expansion in the coming year assuming management has determined that the best path would be to find an institutional lender that offers favorable loan terms. (In future LBT articles the author will provide guidelines for accessing equity investors for existing and start-up companies.)
Nothing is more important than personal credit scores of the borrowers/guarantors. The major stakeholders of the borrowing entity must have FICO credit scores that would be considered favorable to an institutional lender. Every lender sets its own criteria, and the criteria may be dependent on the type of loan and the equity contribution of the borrowers. The credit scores which can be averaged will impact both the lender’s interest and the lender’s pricing. (The. author will address some options to improve personal credit scores in upcoming issues of Latin Biz Today).
Prior to working on a strategic plan, one of the principal stakeholders should contact logical lenders to determine if the lender has an interest in the company’s industry and the company’s market. Once assured that there is an interest on the part of the lender, the potential borrower should assure the lender that operating accounts will be transferred to the lender following loan approval and loan closing. Once the lender has expressed preliminary interest in the loan application, the loan packaging work begins.
Every lender wants to review the history of the company and its current financial condition. In addition, the loan officer will analyze how the use of the funds will impact the company’s profits. The package that will be prepared for the loan committee should provide all the info needed for app loan approval. It should highlight the strengths of the company and the stakeholders without being repetitive and lengthy.
The three following data should be included in the package:
The Past
Professional Resume of all owners / and loan guarantors. Resumes of management personnel may also be included if they add to the viability of the company. A resume should not be more than one page.
Tax returns for 2024L both company tax returns and [personal tax returns for shareholders of 20% or more) of the company.
The Present
A summary paragraph that defines the purpose of the loan and the use of the funds requested. It should also highlight the strengths of the company and the borrower.
The FIICO credit scores for all owners of 20% of more of the shares of the company. The lender will request full credit reports prior to loan closing, but if you can provide F FICO scores with the initial; loan package you can avoid hard credit pulls that negatively impact credit scores.
- A current balance sheet for all major stakeholders and a balance sheet for the company.
- Current bank statements for the company.
- An Interim financial statement for the borrowing entity
The Future
A [proforma income and expense statement for 3 years, prepared monthly for the first year and annually for yours 2 and 3. The proforma should be realistic and detailed. The notes in the proforma should support the financial assumptions].
Related content:
Accessing Capital for the Growth of your Business
Unlocking Capital: Funding Opportunities for Latino Entrepreneurs
Empowering Latino Entrepreneurs in the World of Venture Capital
