44 ©2018 WASHINGTON DC ECONOMIC PARTNERSHIP BUSINESS FINANCING
THE LOAN PROCESS
The best way to obtain financing is to work with a bank
or lending company while writing a business plan. These
lending experts will help decide which type of loan
suits the business and financing needs. It is important
for business owners to learn about loan types and the
application process.
THE FIVE C'S OF CREDIT
Lenders weigh the following five characteristics to determine
credit worthiness of potential borrowers:
CAPITAL: amount of a business owner’s funds that are
invested in the business
CAPACITY: owner’s ability to repay the loan (this is where the
credit report will be crucial.)
COLLATERAL: assets, such as real estate, equipment, or
inventory that can be liquidated to repay the loan if defaulted
CONDITIONS: the way the business owner plans to use the loan
CHARACTER: the general impression of trustworthiness the
owner makes on the prospective lender or investor
APPLYING FOR A LOAN
A business loan application should include the
following information:
A description of the business, including products or
services, market and competitive advantages
A biography with a summary of qualifications (Many
applicants simply provide resumes of key managers.)
A budget detailing how the funds will be used
A statement of equity injection—the business owner’s
personal contribution (If possible, this should be 20
percent of the total budget. The remainder is the amount
of the requested loan.)
Business financial statements and tax returns for the last
three years, if applicable
Cash flow projections for at least the next 12 months
Personal financial statements and three years of tax
returns for each owner of the business
A description of the collateral being offered, in addition to
business assets, which often include personal assets such
as marketable securities or real estate
The lender will evaluate all of this information before making
a decision. In some cases, the application is not quite strong
enough to stand on its own. This is often true of startup
businesses or cases in which the collateral is insufficient
or the equity injection is too small. In those cases, the
lender will sometimes agree to make the loan only with the
guarantee of the U.S. Small Business Administration (SBA).
The lender will guide the business owner through the process
and additional paperwork involved in obtaining the SBA
guarantee. For more information, including a free online tool
that connects small business owners with participating SBAapproved
lenders, visit sba.gov/lendermatch.
TYPES OF LOANS
While there are only two types of loans—short-term and
long-term—there are dozens of loan combinations. By
understanding the different types of loans on the market
and what each is designed to do, business owners can
select the one best suited for their specific credit needs
and circumstances. Owners should make sure that they feel
comfortable with the banker, the bank loan terms, interest
rates and their ability to repay loans before they commit
PARTNER
WITH WDCEP
Is your organization looking for ways
to support DC small businesses,
retail, real estate, and economic
development? Are you ready to sponsor
a WDCEP program? If so, contact us at
dcbiz@wdcep.com for more information.
wdcep.com | (202) 661-8670 | dcbiz@wdcep.com
1495 F Street, NW | Washington, DC 20004
/lendermatch
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