Financing through Small Business Loans

Loan Collateral, the Loan Application Process, and the Business Plan

Finance business ideas with various types of loans available to companies. This includes cash capital loans, lines of credit, and business credit cards.

The business credit application process is an assessment of the ability of the entity to repay the requested loan amount. Criteria will include a review of the viability of the business as a going concern, a look at its business credit history and available collateral, and a review of commercial references. A cash capital business loan can be either a collateral or non-collateral loan. Collateral is pledged business property or assets securing the creditor of debt repayment.

Business Loan Collateral

In consider the business assets needed to secure a loan the most obvious collateral resources are interests in real property and operating accounts without bank right of set-off agreements. Additional resources that can become collateral or security pledges for cash capital loans are accounts receivable (AR), previously paid for inventory, and lien-free operational machinery and equipment.

Accounts receivable is the money owed to the business for goods and services. This is often accounted for in invoicing systems. Operational capital can often be obtained from AR through invoice factoring. The failure to pay for a loan results in loan default and the prior written agreement to give up or forfeiture the collateral.

Writing a Business Plan Before Seeking a Business Loan

Business plans are an essential organizational and goal setting tool for a business. A new business plan will include the following:

  • Identify the business entity as a legally unique name
  • List required business permits and licenses needed to legally operate
  • Outline core operational requirements for the services or goods provided
  • List required inventory, equipment, and supplies
  • Assess the market demand for services or goods
  • Identify competitors
  • Assess potential security and business risks
  • Provide for projected income and profit statements

A business plan provides the loan officer or venture capitalist a review of the viability of the business as a going concern. This will be based on his understanding of business operations and the market demand for the business services or goods. Good business writing and sound accountancy processes will allow the business loan applicant to put the company’s best face forward.

Beginning the Business Loan Application Process

Writing is an essential business skill, most notably in the business loan process. Business owners often hire lawyers and accountants to assist with loan applications which typically include submission of a written business plan, the completion of a commercial loan application, submission of profit and loss statements, and business correspondence between the business agent and the loan officer.i

The loan officer will often require that a loan application be completed and request to make a copy of the business plan and all business licenses and permits. Business references will be requested. The best commercial loan references are from business financiers or suppliers.