by Doug Carleton of Business Lenders, LLC
You might be thinking about buying or opening a B&B. Or, if you already own one, you might be considering expansion or a major renovation. Once you decide that you need to borrow money, whatever the need may be, the very best thing you can do to increase your chances for a quick approval is to gather your information together before you approach a lender.
The most critical items for any lender in any commercial loan application package are the financial items — business financial statements and business tax returns (three years for both, if they exist) and a current personal financial statement for the owner. These items are always required, so it is in your best interest to have them complete, current and ready. If you are more than three months into your current business fiscal year, be sure to provide an interim business financial statement because the lender will require it. If you do not have one, have it already prepared and you will save yourself precious time when making your application. In the case of a startup, you will need a very thorough business plan.
Explain Any Negatives
There may be information in your financial statements that you should explain to the lender in your application package, for example, declining revenues or earnings that have since turned around or very low occupancy rates for a period. Any type of negative trends that appear in the financial statements should be explained in some detail. Hopefully, they have been dealt with and are in the past. But the lender needs to be assured that they won’t come back and jeopardize the loan.
But also, if there have been successes or positives, don’t shy away from pointing them out. Management is one of the most important things a lender looks at. You enhance your management qualifications not only with what you have done right, but also how you dealt with (or are dealing with) any problems. By dealing with issues like this in your application package, you will appear more professional in a lender’s eyes.
Know Your Credit Report
Before you go to see a lender, get copies of your most recent credit reports, both personal and business. Credit-reporting agencies make mistakes, so don’t let a mistake on your credit report kill your deal without your ever knowing why. If you have a past credit problem, deal with it up front when you make your application. The lender is going to find it anyway and want an explanation. If you provide the explanation without the lender having to ask, it could have a positive effect on how the lender looks at your application. Never let it seem as if you are trying to hide something. The fewer explanations a lender has to ask for, the better for you.
And don’t forget lenders get paid to make loans, not to turn them down. They are just as anxious to see you as you are to see them. But commercial lenders look at hundreds of loan applications from all types of businesses. They may want to understand your business, but they only have so much time. You need to help them. Although the B&B industry is dramatically different than it was even five years ago, many lenders don’t understand it, and can’t understand why someone would want to borrow money for a “boarding house.”
Even though you are asking to borrow money, which is sometimes hard for people to do, look at it as though you were making an important sale. A loan to buy a B&B or expand your present property may be one of the most important sales you will ever make. Knowing what a lender needs and preparing it before making your application, can greatly increase your chances of a successful and timely financing.