Business Financing For Small Business

Traditional Business Bank Loans are the most often funded banks that provide financing to U.S Businesses that have been around for a minimum of 3 years. The terms one Traditional Business Bank Loans can range from 12 to 60 months the loans paid back incrementally over the fixed period of term. The industry average of what a company would be funded for a Traditional Business Bank Loan is about 15% to 20% of the company’s prior year revenue. In most companies’ cases their immediate past will determine how much banks will advance the company for the future. The loans are based off of a variety of factors including but not limited to the monthly and yearly revenue of the businesses, the years the company has been established, good to great business and personal credit scores for the owners, a company free of liens and judgements and most importantly a business reporting a profit year over year. Most traditional banks want to see that a business is reporting a cash flow ratio of approximately $1.40 in reported profit for every $1 the company has in debt on its books at the current time. This is an industry average cushion required to underwrite most Traditional Business Bank Loan applications. Due to the fact a bank will not approve a loan for a company whereby the loan awarded causes the company’s cash flow ratio to fall below $1.25 in income for every $1 in debt on the books including the newly funded Business Bank Loan. That way even after the company passes all of the other requirements and is awarded a Traditional Business Bank Loan. The businesses will have a comfortable cushion on their debt schedule in order to better carry the banks debt load.

Most traditional banks will report the companies Business Term Loan payments on their tradlines which typically tends to have a positive effect on the companies business credit score. Which can come in handy the next time the company wants or needs to incur business debt. Since all Traditional Business Bank Loan monthly payments include principal and interest unless otherwise specified. Then once the final payment is made the bank will report that information and remove any UCC1 liens the Bank needed to place on the company during the duration of Business Bank Loan.

While requirements to qualify for financing with traditional banks may vary in the details from one lender to another, in general, they look for companies that have been in business a minimum of 3 years, with the company reporting a profit for the last 2 years.

All traditional bank lenders will want to look at the 2 most recent years of the company’s financial statements, including the business bank statements, profit & loss statements, balance sheet, and possibly a business plan to get a sense of your business’ financial health.

A lot of the traditional banks will prefer to fund businesses that are reporting a minimum of $1 million or more in annual revenues.

Most traditional banks prefer to lend to businesses whereby the owners/principals of the company maintain a low personal debt-to-credit ratio. In general, the minimum fico score most banks will lend to is a 680 fico. Traditionally the banks likely need personal credit scores in the 700+ score range.

Most banks will want the company to have a solid business credit score in order to qualify for a Traditional Business Bank Loan. This is on top of the owners/principals of the business needing to have solid credit scores as well.

All banks will expect to see that a business is bringing in a healthy amount of cash flow. Underwriters are going to comb through the company’s business bank account statements to determine if there is a healthy enough average daily balance. In order to qualify for Business Bank Loans companies need to showcase that there is sufficient cash flow to service debt.

In order to qualify for a Bank Business Loan their underwriters are going to need to evaluate the companies’ debt-to-credit ratio. Companies are to need to supply their 2 most recent full years Profit & Loss and Balance Sheet. Including the current year as of the date of application. Companies are going to need to prove that they will have a pro-forma cash flow ratio of $1.25 in profit for every $1.00 in debt on the books including the bank’s newly funded Term Loan to the company.

Finally Banks will want a detailed forward looking business plan to explain the purpose of the loan.