Have you ever thought about getting a business loan, but didn't know where to start or how to get one? Here to help demystify the business loan process is Bank of Hawaii Vice President Keith Shiroma.
What are some of the most common reasons businesses need a loan?
There are five common reasons businesses seek financing: (1) when they are expanding; (2) adding a location, new product line or service; (3) purchasing new equipment; (4) buying or replenishing inventory; or (5) just financing their day-to-day operations.
What are some important first steps that businesses need to do before heading off to apply for a business loan?
It's important to do a little homework before you start. Do some research on financial institutions to find which lender best suits your needs. Read up on types of business services, loans or lines of credit that they offer. Search for a loan or line with terms that seem reasonable and affordable to you. We generally recommend not automatically applying with the first lender or financial institution you come across.
Can you apply for a loan at multiple institutions, or is that not a good idea?
It doesn't hurt to do that. There are often situations where one lender may deny or decline a loan request, but another lender will approve it. So it's always a good idea to look at all of your financing options.
What documents are needed when applying for a business loan?
Some of the basic documents that businesses should be prepared to submit with an application include:
Documents You Need For a Business Loan
Business Tax Returns
Financial Statements (Income Statement and Balance Sheet)
Personal Tax Returns and Financial Statements
Business Plan
What general information can businesses expect lenders to be asking?
Lenders will need to have a good understanding of your business prior to approving a loan or line of credit, so questions they ask may include: (1) how long have you been in business; (2) what type of products or services do you offer; (3) who is your competition and what is your strategy to gain a competitive advantage; (4) do you own or lease your commercial property; and (5) what are your projections/plans for the future of your business.
I assume you would also have to show how your business is doing financially?
That's very crucial when financial institutions are evaluating a loan or line of credit request. The profitability of your business to sustain its operations and service the monthly debt from the loan is one of the most important factors that is looked at.
Any advice for businesses who get turned down for the loan?
Try to make sure you understand the reasons for being declined. The lender is required to provide you with an explanation. Sometimes it's just a simple matter of not having provided the proper documentation, or providing additional or clarifying information on your financial statements or business plan. If it was due to poor or outstanding credit, see if there's anything you can do to fix it immediately or ask what your options are. And finally, as we discussed before, you can always try a different lender, if you feel you've taken the necessary steps to improve your situation.
Visit www.Boh.com for more information
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