While the process can be time consuming, frustrating, and intimidating, if you are informed and well prepared, your chances of securing the needed capital are greatly increased.

In putting together a loan package, ask yourself the following basic questions. The answers to them and the information provided to back them up are essential to the lending decision and its speed.

1. What is the specific purpose of the loan?
   Your lender or investor will review your financial requirements among three types of capital acquisition:
• Working Capital: Used to meet fluctuating needs that will be repaid during the company's next full operating cycle, generally one year.
• Growth Capital: Used to meet needs that will be repaid with profits over a several-year period (usually not more than seven years). 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.
• Equity Capital: Used to meet permanent needs. Equity capital must be raised from investors who will take a risk in return for some combination of dividend returns, capital gains, or a specific share of the business .
2. What amount of financing will support my needs?
   Do not ask, how much can I borrow? Have enough existing capital so that, augmented by the loan, the business can operate on a sound financial basis. For new businesses, this includes sufficient resources to withstand startup expenses and the initial operating phase, during which losses are likely to occur. Be able to inject between one-third and one-half of the total capital required. If you plan to borrow equity from friends or relatives, determine what the repayment terms will be.
3. When and for how long will I need these funds?
   Most of today's lenders are providing growth capital in the form of asset-based loans, i.e., loans for acquiring land, buildings, or equipment which can be used as security. While the majority of these loans carry terms of three to seven years, some may extend over longer periods. For financial planning purposes, the entrepreneur should keep in mind that longer loan periods incur larger overall interest costs.
4. How will I generate sufficient cash flow to repay the loan?
   Consider the situation from the lender's point of view: if you were asked to lend someone money, you'd want assurance of being paid back in full, and in a timely manner.
5. What collateral can be utilized (if applicable)?
   Estimate its value, and be ready to provide supporting appraisals.
6. Will the owners provide personal guarantees?
   Having a comprehensive and well thought-out business plan is essential in obtaining financing. In fact, without one, even stepping into the bank is pointless. To lenders or potential investors, a plan not only provides information and reveals your evaluation of your venture's feasibility, but also reflects your management abilities. An analytical, objective business plan convinces lenders you are cautious, conservative, and capable. One that is poorly researched, makes unsupported assumptions, or draws unfounded conclusions shows you are inexperienced and - in their eyes - reckless. Lenders receive so many proposals that they cannot afford to spend much time evaluating each business plan. That means your plan has only a few minutes to make a good impression, and must therefore speak for itself as a sales tool. One key is to make sure your business plan is as thorough and accurate as possible and that you can back up all your claims with facts.

The business plan should include

• Executive Summary
  This portion concisely summarizes the key elements of the business plan which follow, and should convince the lender that it is worthwhile to review the plan in detail. Include information about the loan being sought in terms of amount, purpose, duration, and how you intend to pay it back.
• Company History/Organization/ Management
  Describe the historical development of the business, including legal form of organization, significant changes, subsidiaries,  degree of ownership, and the principals roles they played in the firm's foundation. Detail their experience and the management and decision-making structure. Also include an organizational chart and discuss other key personnel and their responsibilities.
• Product/Service
  Detail the present or planned product or service lines, including their relative importance (with sales projections, if possible), evaluation (use, quality, performance), competitive advantage, and demand.
• Market Analysis/Marketing Strategy
  You should be able to estimate how many customers you will have and how near they are to your location, as well as their age, family structure, lifestyle, disposable income, and purchasing habits. Explain why your product/service is desirable to them, the scope of your firm's marketing and selling activities (including pricing policy), and what share of the market you will realistically be able to capture based on the industry analysis that follows.
• Industry Analysis (Competition)
  It is equally important to know about your field and have a keen sense of the competition. List your major competitors by name and describe how closely located they are, what products/services they provide, what they do better/worse, and how profitable/successful they are. Also elaborate on the industry itself, including an industry outlook, principal markets, industry size, and major characteristics. Describe the effects of any major social, economic, technological, or regulatory trends.
• Production/Operating Plan
   Explain how the firm will perform production or delivery of service in terms of physical facilities, suppliers, labor supply (current and planned), technologies/skills required, manufacturing process (if applicable), and cost breakdown for materials, labor, and overhead .

According to George Solomon, Director of Education and Resource Management for the SBA's Business Development Office, the following items will also be needed to support a loan request:

• Sources and Uses of Funds Statement
  The potential lender will require a statement of how you intend to disperse the loan funds; back up your statement with supporting data. For example, buying a commercial building will require a preliminary title report, an appraisal, an escrow, and title insurance, among other documents.
• Cash Flow Statement (Budget)
  These documents (used for internal planning) project what your business means in terms of dollars and show cash inflow and outflow over a period of time. If you've been in business for some time, worksheets can be compiled from the actual figures of income and expenses in previous years combined with projected changes for the next period. If starting a new business, you will have to project your financial needs and disbursements.
• Three-Year Income Projection
  This pro-forma projection only includes income and deductible expenses, while the cash flow statement (above) includes all sources of cash and monies to be paid out. Find out the lender's specific requirements as to whether income and expenses should be projected on an annual or monthly basis.
• Breakeven Analysis
  The breakeven point is the point at which a company's expenses exactly match its sales or service volume, and the firm neither makes a profit nor incurs a loss. It can be calculated in either mathematical or graph form and expressed in total dollars or revenue exactly offset by total expenses.
• Balance Sheet
  This financial statement, usually prepared at the close of an accounting period, shows the financial condition of the business as of a fixed date. By regularly preparing it, you will be able to identify and analyze trends in the financial strength of your firm and thus implement timely modifications.
• Income Statement
  In contrast to the balance sheet, this statement shows what has happened to your venture over a period of time; it is an excellent tool for assessing your business. It enables you to identify weaknesses in your operation (such as the timing of an advertising campaign that did not bolster sales as anticipated) and devise more effective ways to run your firm and thereby increase profits. Similarly, you might examine your income statement to see which months have the heaviest sales volume and plan inventory accordingly. Comparison of income statements from several years will provide an excellent picture of the trends in your business .

As a sole proprietor or principal of a corporation, you may be asked to back up your business loan with personal assets (your house, stocks, or bonds). If you're in a partnership, a personal guarantee must be signed by all principals for repayment of the loan.

It is important to emphasize that businesses with several years of successful operation will find it far easier to obtain financing than startups, as lenders will be much more receptive and confident in your ability to repay a loan at that point. In fact, without a strong business plan with realistic expectations and forecasts, managerial experience, and collateral, it may be impossible for a new business to get a loan at all. Lenders are always leery of extending financing to new ventures or unproven management teams, as they represent a high risk of default.

This doesn't mean you can't get a loan as a startup, but rather that you will have to compensate for the lack of a track record by being strong and well-prepared in other areas. Demonstrate by your enthusiasm and the thoroughness of your business plan that you are committed to the venture and that it will succeed. After all, when applying for a loan, you're selling both yourself and your business.

Scott McCrea, a consultant with Deloitte & Touche's San Francisco office, advises entrepreneurs to develop and nurture a relationship once credit is granted. He suggests keeping the lender updated on the company's progress and staying abreast of the lender's other products and services that may apply to your business. As the firm grows, you may need to restructure or enhance your credit, and it only makes sense to turn to someone already familiar with and confident in your business acumen.

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