Loans Training Module
Many businesses have struggled to get financing or are thinking of venturing into small business loan territory for the first time. This course will address many issues related to the types of loans available, what loans are right for your business, your eligibility for specific types of loans, and how to apply.
Applying for a Loan
Applying for a Loan
This course will review the loan application process and provide you with a comprehensive checklist, which includes reviewing the loan application form, preparing resumes and a business plan, and preparing and submitting your business credit report, income tax returns, financial statements, AR/AP reports, and other collateral and legal documents.
Credit Factors
There are several critical factors that go into determining your credit worthiness for a loan. This course reviews types of equity, earning requirements, working capital, collateral, and other assets and factors to consider when applying for business credit.
Microloans and More
An overview of microloans – loans up to $50,000 to small businesses and certain not-for-profits, Venture Capital – a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from traditional sources, and Angel Investors – high net worth individual investors who seek high returns through private investments in start-ups.
Lesson 1 (1+ Hour)
Applying for a Loan Lesson 1
Applying for a Loan
This course will review the loan application process and provide you with a comprehensive checklist, which includes reviewing the loan application form, preparing resumes and a business plan, and preparing and submitting your business credit report, income tax returns, financial statements, AR/AP reports, and other collateral and legal documents.
Credit Factors
There are several critical factors that go into determining your credit worthiness for a loan. This course reviews types of equity, earning requirements, working capital, collateral, and other assets and factors to consider when applying for business credit.
Microloans and More
An overview of microloans – loans up to $50,000 to small businesses and certain not-for-profits, Venture Capital – a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from traditional sources, and Angel Investors – high net worth individual investors who seek high returns through private investments in start-ups.
**DISCLAIMER: NOT ALL COURSES ARE REQUIRED. PLEASE FEEL FREE TO TAKE ONLY THOSE COURSES THAT INTEREST YOU.
Of course, each loan program has specific forms you need to fill out. But for the most part, you’ll need to submit the same types of documentation. So it’s a good idea to gather what you’ll need before you even start the application process.
Here are the typical items required for any small business loan application:
Loan Application Form
Forms vary by program and lending institution, but they all ask for the same information. You should be prepared to answer the following questions. It’s a good idea to have this information prepared before you fill out the application:
Why are you applying for this loan?
How will the loan proceeds be used?
- What assets need to be purchased, and who are your suppliers?
- What other business debt do you have, and who are your creditors?
- Who are the members of your management team?
- Personal Background
Either as part of the loan application or as a separate document, you will likely need to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc.
Resumes
Some lenders require evidence of management or business experience, particularly for loans that can be used to start a new business.
Business Plan
All loan programs require a sound business plan to be submitted with the loan application. The business plan should include a complete set of projected financial statements, including profit and loss, cash flow and balance sheet.
Here are some resources for preparing your business plan:
- Essential Elements of Writing a Good Business Plan
- Templates for Writing a Business Plan
- Personal Credit Report
Your lender will obtain your personal credit report as part of the application process. However, you should obtain a credit report from all three major consumer credit rating agencies before submitting a loan application to the lender. Inaccuracies and blemishes on your credit report can hurt your chances of getting a loan approved. It’s critical you try to clear these up before beginning the application process.
Business Credit Report
If you are already in business, you should be prepared to submit a credit report for your business. As with the personal credit report, it is important to review your business’ credit report before beginning the application process.
Income Tax Return
Most loan programs require applicants to submit personal and business income tax returns for the previous three years.
Financal Statements
Many loan programs require owners with more than a 20 percent stake in your business to submit signed personal financial statements.
You may also be required to provide projected financial statements either as part of, or separate from your business plan. It is a good idea to have these prepared and ready in case a program for which you are applying requires these documents to be submitted individual.
The following forms may be used to prepare your projected financial statements:
- Balance Sheet
- Income Statement
- Cash Flow
- Bank Statements
Many loan programs require one year of personal and business bank statements to be submitted as part of a loan package.
Accounts Receivable & Accounts Payable
Most loan programs require details of a business’s most current financial position. Before you begin the loan application process, make sure you have accounts receivable and accounts payable.
Collateral
Collateral requirements vary greatly. Some loan programs do not require collateral. Loans involving higher risk factors for default require substantial collateral. Strong business plans and financial statements can help you avoid putting up collateral. In any case, it is a good idea to prepare a collateral document that describes cost/value of personal or business property that will be used to secure a loan.
Legal Documents
Depending on a loan’s specific requirements, your lender may require you to submit one or more legal documents. Make sure you have the following items in order, if applicable:
- Business licenses and registrations required for you to conduct business
- Articles of Incorporation
- Copies of contracts you have with any third parties
- Franchise agreements
- Commercial leases
- Organizing your documents
Keeping good records is essential for running a successful business, but even more critical when applying for a loan. Make sure required documents are orderly and accurate. All information you provide will be verified by your lender and the organization guaranteeing the loan. False or misleading information will result in your loan being denied. Finally, make sure you keep personal copies of all loan packages.
Lesson 2 (1+ Hour)
Applying for a Loan Lesson 2
Applying for a Loan
This course will review the loan application process and provide you with a comprehensive checklist, which includes reviewing the loan application form, preparing resumes and a business plan, and preparing and submitting your business credit report, income tax returns, financial statements, AR/AP reports, and other collateral and legal documents.
Credit Factors
There are several critical factors that go into determining your credit worthiness for a loan. This course reviews types of equity, earning requirements, working capital, collateral, and other assets and factors to consider when applying for business credit.
Microloans and More
An overview of microloans – loans up to $50,000 to small businesses and certain not-for-profits, Venture Capital – a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from traditional sources, and Angel Investors – high net worth individual investors who seek high returns through private investments in start-ups.
**DISCLAIMER: NOT ALL COURSES ARE REQUIRED. PLEASE FEEL FREE TO TAKE ONLY THOSE COURSES THAT INTEREST YOU.
Of course, each loan program has specific forms you need to fill out. But for the most part, you’ll need to submit the same types of documentation. So it’s a good idea to gather what you’ll need before you even start the application process.
Here are the typical items required for any small business loan application:
Equity Investment
Business loan applicants must have a reasonable amount invested in their business. This ensures that, when combined with borrowed funds, the business can operate on a sound basis. There will be a careful examination of your business’ debt-to-worth ratio to help all parties understand how much money the lender is being asked to lend (debt) in relation to how much you have invested (worth).
Owners invest either assets that are applicable to the operation of the business and/or cash which can be used to acquire such assets. The value of invested assets should be substantiated by invoices or appraisals for start-up businesses, or current financial statements for existing businesses. This value is also known as equity investment.
Types of Equity
- Strong equity investment shows a lender that you are fully committed to the business.
- Sufficient equity is particularly important for new businesses, to convince the lender that you are serious.
- Weak equity will make a lender more hesitant to provide any financial assistance. However, low equity in relation to existing and projected debt (your current obligations plus the new loan) can be overcome with a strong showing in all the other credit factors.
- Non-existent equity can make obtaining a loan almost impossible, as you have not shown commitment to your business by investing your own money or assets in it.
Earning Requirements
Financial obligations are paid with cash, not ‘on paper’ profits. When cash outflow exceeds cash inflow for an extended period of time, a business cannot continue to operate. This means that cash management within your business is extremely important. In order to adequately support your company’s operation, cash must be at the right place, at the right time and in the right amount.
The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan before making funds available. Payment history on existing credit relationships (personal and commercial) is considered an indicator of future payment performance.
Applicants are generally required to provide a report detailing when their income will become cash and when their expenses must be paid. This report is usually in the form of a cash flow projection, broken down on a monthly basis and covering the first annual period after the loan is received. A critical factor in loan approval is making sure the lender understands how these revenues will be generated.
Working Capital
Current assets are the most liquid of your assets, meaning they are cash or can be quickly converted to cash. Current liabilities are any obligations due within one year. Working capital measures what is leftover once you subtract your current liabilities from your current assets, and can be a positive or negative amount. The working capital is available to pay your company’s current debts, and represents the cushion or margin of protection you can give your short-term creditors.
Collateral
Collateral is an additional form of security which can be used to assure a lender that you have a second source of loan repayment. Assets such as equipment, buildings, accounts receivable, and (in some cases) inventory are considered possible sources of repayment if they can be sold by the bank for cash. Collateral can consist of assets that are usable in the business as well as personal assets that remain outside the business.
Owner-occupied residences generally become collateral when:
- The lender requires the residence as collateral
- The equity in the residence is substantial and other credit factors / sources of collateral are weak
- Such collateral is necessary to assure that the principal(s) remain committed to the success of the venture for which the loan is being made
- You operate the business out of the residence or other buildings located on the same parcel of land
Lesson 3 (1+ Hour)
Applying for a Loan Lesson 3
Applying for a Loan
This course will review the loan application process and provide you with a comprehensive checklist, which includes reviewing the loan application form, preparing resumes and a business plan, and preparing and submitting your business credit report, income tax returns, financial statements, AR/AP reports, and other collateral and legal documents.
Credit Factors
There are several critical factors that go into determining your credit worthiness for a loan. This course reviews types of equity, earning requirements, working capital, collateral, and other assets and factors to consider when applying for business credit.
Microloans and More
An overview of microloans – loans up to $50,000 to small businesses and certain not-for-profits, Venture Capital – a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from traditional sources, and Angel Investors – high net worth individual investors who seek high returns through private investments in start-ups.
**DISCLAIMER: NOT ALL COURSES ARE REQUIRED. PLEASE FEEL FREE TO TAKE ONLY THOSE COURSES THAT INTEREST YOU.
The Microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000.You may also be required to provide projected financial statements either as part of, or separate from your business plan. It is a good idea to have these prepared and ready in case a program for which you are applying requires these documents to be submitted individual.
Microloans can be used for:
- Working capital
- Inventory or supplies
- Furniture or fixtures
- Machinery or equipment
Eligibility Requirements
Each intermediary lender has its own lending and credit requirements. Generally, intermediaries require some type of collateral as well as the personal guarantee of the business owner.
Interest rates vary, depending on the intermediary lender and costs to the intermediary from the U.S. Treasury. Generally, these rates will be between 8 and 13 percent.
Application Process
Microloans are available through certain nonprofit, community-based organizations that are experienced in lending and business management assistance. If you apply for SBA microloan financing, you may be required to fulfill training or planning requirements before your loan application is considered. This business training is designed to help you launch or expand your business.
Venture Capital
Venture capital is a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from more traditional sources, such as public markets and banks. Venture capital investments are generally made as cash in exchange for shares and an active role in the invested company.
Venture capital differs from traditional financing sources in that venture capital typically:
Focuses on young, high-growth companies
Invests equity capital, rather than debt
Takes higher risks in exchange for potential higher returns
Has a longer investment horizon than traditional financing
Actively monitors portfolio companies via board participation, strategic marketing, governance, and capital structure.
Venture capital is also an active rather than passive form of financing. These investors seek to add value, in addition to capital, to the companies in which they invest in an effort to help them grow and achieve a greater return on the investment. This requires active involvement; almost all venture capitalists will, at a minimum, want a seat on the board of directors.
Although investors are committed to a company for the long haul, that does not mean indefinitely. The primary objective of equity investors is to achieve a superior rate of return through the eventual and timely disposal of investments.
Angel Investors
Business “angels” are high net worth individual investors who seek high returns through private investments in start-up companies. Private investors generally are a diverse and dispersed population who made their wealth through a variety of sources. But the typical business angels are often former entrepreneurs or executives who cashed out and retired early from ventures that they started and grew into successful businesses.
These self-made investors share many common characteristics:
They seek companies with high growth potentials, strong management teams, and solid business plans to aid the angels in assessing the company’s value. (Many seed or start ups may not have a fully developed management team, but have identified key positions.)
They typically invest in ventures involved in industries or technologies with which they are personally familiar.
They often co-invest with trusted friends and business associates. In these situations, there is usually one influential lead investor (“archangel”) those judgment is trusted by the rest of the group of angels.
Because of their business experience, many angels invest more than their money. They also seek active involvement in the business, such as consulting and mentoring the entrepreneur. They often take bigger risks or accept lower rewards when they are attracted to the non-financial characteristics of an entrepreneur’s proposal.
The Venture Capital Process
Submit Business Plan. The venture fund reviews an entrepreneur’s business plan, and talks to the business if it meets the fund’s investment criteria. Most funds concentrate on an industry, geographic area, and/or stage of development (e.g., Start-up/Seed, Early, Expansion, and Later).
Due Diligence. If the venture fund is interested in the prospective investment, it performs due diligence on the small business, including looking in great detail at the company’s management team, market, products and services, operating history, corporate governance documents, and financial statements. This step can include developing a term sheet describing the terms and conditions under which the fund would make an investment.
Investment. If at the completion of due diligence the venture fund remains interested, an investment is made in the company in exchange for some of its equity and/or debt. The terms of an investment are usually based on company performance, which help provide benefits to the small business while minimizing risks for the venture fund.
Execution with VC Support. Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally do not make their entire investment in a company at once, but in “rounds.” As the company meets previously-agreed milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.
Exit. While venture funds have longer investment horizons than traditional financing sources, they clearly expect to “exit” the company (on average, four to six years after an initial investment), which is generally how they make money. Exits are normally performed via mergers, acquisitions, and IPOs (Initial Public Offerings). In many cases, venture funds will help the company exit through their business networks and experience.
The Venture Capital Process
Submit Business Plan. The venture fund reviews an entrepreneur’s business plan, and talks to the business if it meets the fund’s investment criteria. Most funds concentrate on an industry, geographic area, and/or stage of development (e.g., Start-up/Seed, Early, Expansion, and Later).
Due Diligence. If the venture fund is interested in the prospective investment, it performs due diligence on the small business, including looking in great detail at the company’s management team, market, products and services, operating history, corporate governance documents, and financial statements. This step can include developing a term sheet describing the terms and conditions under which the fund would make an investment.
Investment. If at the completion of due diligence the venture fund remains interested, an investment is made in the company in exchange for some of its equity and/or debt. The terms of an investment are usually based on company performance, which help provide benefits to the small business while minimizing risks for the venture fund.
Execution with VC Support. Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally do not make their entire investment in a company at once, but in “rounds.” As the company meets previously-agreed milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.
Exit. While venture funds have longer investment horizons than traditional financing sources, they clearly expect to “exit” the company (on average, four to six years after an initial investment), which is generally how they make money. Exits are normally performed via mergers, acquisitions, and IPOs (Initial Public Offerings). In many cases, venture funds will help the company exit through their business networks and experience.
Searching for Leaders
Federal, state and local governments offer a wide range of financing programs to help small businesses start and grow their operations. These programs include low-interest loans, venture capital, and scientific and economic development grants.
Our Pathways
Entrepreneurship Training Module
An entrepreneur is an individual who creates and/or invests in one or more businesses. Women can take charge of their professional growth and development in order to own and manage their business.
Marketing Training Module
To be successful, men and women business owners must ensure they have a strong grasp of marketing fundamentals and marketing strategies that will help ensure continued growth for their enterprise.
Loans Training Module
Access to financial capital is key to any businesses seeking to grow. From funding expansion to hiring new employees, men and women require business loans to help their enterprises succeed.