By calculating cash income versus cash expenditures, you can identify cash flow patterns (how much and when money is coming in and going out). Strong cash flow means you can pay upcoming bills and cover the next pay period. But, indications of a strong cash flow also show the lender that you can pay a loan back. Is your cash flow not so strong? Build your business credit capacity by paying down some debt before applying for a loan.

Lenders are keenly interested in how much the business owners or management team have invested in the business. They also want to know about your capital assets like cash and equipment. These provide a lender with the added security that you can pay the loan back.

Your business and personal assets are considered collateral (or a secondary source of repayment) for a loan. Collateral can be cash, equipment, commercial property, inventory, or accounts receivable. A creditor will look at each form of collateral closely, as well as any debt attached to it. Be sure you have a full list of your collateral assets before you apply for a loan. 

What is the current state of your business, your industry, and the economy? Although there’s not much you can do about industry trends or pending legislation, these will undoubtedly affect how much capital will be loaned due to the impact these factors might have on your ability to pay back your loan. Experts suggest you apply for a line of credit when your industry and business are in a strong position, so you have the financing available when you need it.

Your integrity and history (both credit-related and experience-related) are essential attributes. Financers like to see industry experience and solid credit history. To demonstrate your character to a lender, gather a list of professional references, such as an accountant, lawyer, or business advisor, that you can share. In addition, come prepared to explain the care and effort you have put into your business planning and management process.

Establishing a relationship with your lender requires frequent and forthright communication. Provide details about your business and industry, your goals, as well as your financing needs. An honest back-and-forth conversation is a great starting point when applying for a loan. Continued dialogue strengthens the relationship.