Customers frequently ask me about the information they need to provide in order to get approved for an equipment loan or lease. What does a bank really look for when reviewing a transaction?
For smaller transactions, many banks have a process where you can submit just an application if the requested amount falls under a certain threshold. No other documentation is needed. For example, 1st Source Bank’s application only maximum for buses is $350,000. Assuming that a company has enough credit history, 1st Source Bank won’t need financials or other records until a company has financed $350,000 or more.
What about larger loan amounts? Here are six helpful items to provide the bank when applying for a larger transaction or line of credit. These tips will help you to get your company’s financial “house” in order and make your larger transactions with the bank smoother.
1. Share the story of your business.
Banks wish to understand the history of your business to bring context to the loan request. This includes information such as:
• Who founded the company and when it was formed?
• Who the current owners are, their percentage of ownership, and their years of industry experience?
• Names of the managing employees or key personnel and details about their background
• Any other information about your business that you think is helpful
2. Quality corporate financial statements can make a difference.
Most banks require your last two to three years of financial statements (preferably audited) and your most recent interim statements, if available. Your financial statements should consist of a Balance Sheet and a Profit and Loss (P&L) statement. If you are a smaller company and financials are not available, then tax returns are usually acceptable.
The higher the quality of your financial statements, the easier it is for the credit underwriter to get a full picture on your company’s financial situation. Poorly put-together financials will leave room for mistakes and can cause confusion. Vague financials can also add a lot of questions to the deal and prolong the decision-making process. Investing in quality accounting staff and systems not only help a business grow profitably, but can improve the likelihood of prompt credit approval.
3. Personal financial statements add value.
If you don’t already have a personal financial statement prepared, banks often provide a standardized form that makes the process of preparing a personal financial statement easy. Your assets and liabilities will be recorded on the form, along with other information. Assets would include your balances in checking or savings accounts, retirement account balances, and real estate. Liabilities would cover items such as credit card balances, loans and mortgages. Some borrowers prefer to attach personal tax returns, plus bank or brokerage statements to further enhance the bank’s understanding of their financial situation.
4. A fleet listing helps organize your collateral.
Your fleet is the tool that allows your company to serve your clients and generate revenue. The fleet is also the primary collateral to the bank. Providing a complete and detailed fleet list, by unit, that shows brand, make, year, VIN, mileage, and amount owed to whom goes a long way toward speedy loan approval. Equity in your fleet can make a difference to some banks.
5. Operating details and statistics give insight.
A short summary of how your business operates can provide a bank more insight. Information regarding your major clients or contracts, how maintenance is handled, historic and projected fleet use, fleet depreciation assumptions and how fleet debt is amortized are good topics to share.
6. Open communication sets the stage for success.
Communicating your opportunities and challenges with the bank helps the loan process. Understanding your desired timeline and constraints positions the bank to better meet your needs.
Amanda Lundmark serves as assistant vice president of the Bus Division of 1st Source Bank. For more information, visit www.1stsource.com/motorcoach and www.1stsource.com/shuttlebus or contact her at (815) 953-3623. For over 150 years, 1st Source Bank has been committed to the industries and communities that it serves.