If you are your company’s only owner or own a business with other people, obtaining the money you need to finance your business can be complicated. For years now, banks have been lending less money to companies that don’t qualify for SBA loans because of their lack of collateral.
The following five steps can help you analyze your need for a loan, figure out how much you need, and provide a framework so that you can approach banks to discuss their options.
5 steps to refinancing your business loan
1. Define Your Business Needs
List down everything you need money for your business. Please make a list of necessities, and be sure to think about items that might not seem like they are vital but will help your company grow in the long run. Ask yourself these questions while determining just what you need:
- When will the money be needed, and how long can cash reserves cover expenditures?
- What debt or funding gap keeps your business from reaching its potential?
- Is there a gap between revenue and expenses that needs to be bridged?
2. Assess Your Business’s Liquidity
It’s important to assess your company’s liquidity. Lenders will want to know how much money you have available right now and how long you can maintain business operations without receiving revenues.
- Do you have any current liabilities?
- How much money do you currently owe on loans, leases, mortgages, etc.?
- What is the value of equipment that you could sell if needed?
3. Assess Your Personal Liquidity
Lenders want to know about your profits and what other revenue streams you might be able to tap into to meet your business’s needs. You can easily determine your liquidity by:
- Do you own a home that could serve as collateral for a loan?
- What other investments do you have, if any?
- Are there insurance policies that you could cash in to provide liquidity?
- Are there loans outstanding against your name? If so, how much money can you access without paying penalties or suffering other significant losses?
4. Prepare Your Financial Statement
You will have to prepare a financial statement that outlines your current situation to get a loan. You will have to include your most recent tax returns and bank statements in this document.
- List all of the company’s assets and inventory.
- Indicate the value of each item on hand.
- Provide information about accounts receivable.
- List all the company’s liabilities and personal collateral such as homes and cars.
- Include a section on cash reserves. How much money you have on hand isn’t already earmarked for another purpose.
5. Determine Your Loan Amount and Time Frame
Use your financial statement to determine how much you need to borrow and what type of collateral is required to back a loan.
- Determine the amount of cash you need in total, including what is necessary for working capital and inventory or equipment purchases.
- Use the time frame in which you will need the money to determine how large your monthly payments will be.
According to Lantern by SoFi, “Starting a business as an entrepreneur is an exciting time, but it can also be a stressful one.” To know how to get a business loan with no money, consult a professional.