This course is designed to provide a basic overview of loan packaging. It is a practical program with real-world examples and helpful tips. The course is directed to small business owners who are interested in borrowing money to start, grow or expand their businesses
Duration of the course: 00:30:00
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Slide 3 Course Objectives
This course has three key objectives:
One, describe how to prepare a loan package for a lender. Two, explain how a lender will evaluate your loan request.
And three, provide access to resources that can assist you in preparing a loan package.
Slide 4 Course Outline
There are eight topic sections within the course. Each section covers a different aspect of loan packaging.
The course leads with “full disclosure” – that is, candid facts about borrowing money.
It then describes what a lender will need to know about your loan request and how to comply.
It also covers in some detail, the components of a typical loan package and how to put the materials together in a meaningful way.
Slide 5 Course Outline (cont)
Practical packaging tips are also provided to help prepare you before speaking with a lender. In addition, the training provides an overview of how your loan request will be reviewed. Care is taken to help you understand how a lender will evaluate your request.
It also provides several “next steps” to start you in the process of preparing a loan package for a lender.
Lastly, numerous additional resources are identified to assist you.
You will notice a button in the top right section of each slide that says Course Outline. Clicking on that button will bring you to the course outline – which will give you quick access to any section of the course.
OK, let’s get started. To advance to the next section, click on the continuation button on the bottom of your screen.
Slide 6 Full Disclosure
In the spirit of full disclosure, several important issues need to be addressed upfront.
First. There is no such thing as 100% financing. You will be required to put money into the business, before a lender will provide financing. In some cases, some lenders will recognize “sweat equity” as a contribution to owner’s capital.
Second. Your credit history is important! If there are any credit issues that can be remedied, before meeting with a lender, do so. A lender may be able to make exceptions if you can document that a negative credit report was due to circumstances beyond your control. If this applies, include a detailed written explanation with supporting information in your loan package.
Third. A lender will probably ask for a personal guaranty, even if you are incorporated. It is unlikely this
can be avoided.
Fourth. There is no such thing as a government grant for individual small businesses. Contrary to what some unscrupulous sales pitches will suggest, there are no government sources, including the SBA, that provide free money for opening or growing a for-profit small business. If it sounds too good to be true, it probably is.
And lastly, SBA does not lend money directly to small businesses, for any purpose, other than disaster assistance. Rather, SBA is a guarantor. It guarantees loans made by lenders to small firms. SBA provides
a level of security to lenders, so they will provide financing to small businesses who might otherwise not be able to obtain financing from a lender.
Slide 7 So You Think You Need A Loan
Getting a business loan is an age-old problem. Most entrepreneurs find it to be one of the greatest struggles they face.
While the process can be time consuming and even frustrating, your chances of being successful are greatly increased, if you are informed and well prepared.
Being informed.., means doing your homework and understanding the borrowing process. ---- Being prepared.., means putting together a meaningful loan package that addresses the most common questions a lender will ask.
Questions such as: - What is the specific purpose of the loan? - How much of a loan are you requesting?
- When and how long will you need the funds? - How will the loan will be repaid? - What collateral can be used to secure the loan? - and, Will you provide a personal guaranty?
Answers to these questions, as well as supporting documentation are essential to the lending decision and will shape your lender’s response. Let’s look at each of these items.
Slide 8 Loan Purpose
Clearly defining the purpose of a loan request is critical. A lender will review your financial requirements based primarily on two types of capital infusions, working capital and growth capital.
•Working capital is used to meet fluctuating needs that will be repaid during the company's next full operating cycle, generally one year.
•Growth capital is used to meet needs that will be repaid with profits over a select period of time - usually not more than seven years, although some SBA financing options may provide a longer loan maturity. If seeking growth capital, you will be expected to show how the money will be used to increase profits sufficiently to repay the loan in the agreed-upon time frame.
Slide 9 Loan Amount
How much of a loan do you need to support specific business needs? This is the question you should address, NOT, how much can I borrow?
Clearly defined business needs should be tightly aligned with the amount of financing you are requesting. How accurately and convincingly you speak to this --- will often determine your lender’s interest in your request and set the tone for further dialog.
Remember, 100% financing is not an option….. And, never ask to borrow money you don’t need.
Slide 10 Loan Maturity & Terms
A lender will want to know how long you need the borrowed funds.
The reality, however, for working capital or asset-based loans is that the loan maturity will be tied to the amount of time needed to satisfy specific cash flow issues or the life expectancy of the asset being purchased.
For instance, working capital loans or lines of credit would have short-term maturities, typically under one year. An asset-based or equipment loan, perhaps to purchase a business vehicle or machinery,
could have a maturity tied to the lifecycle of the asset. This type of loan, typically would have a maturity of three to seven years. The key exception would be SBA guaranteed loans. Such loans could have maturities greater than ten years.
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