Don't stand outside the bank wondering what happened to that loan you wanted, do something about the problems before you get there! Here are some of the challenges you may face.

EQUITY
The equity question can no longer be answered just by subtracting everything you owe from everything you own. It now must be balanced against a commitment factor. Your lender wants a high equity to debt ratio, showing that with the new loan you will have a financial cushion against unforseen expenses. Lenders feel an owner with a high equity investment stands a better chance of remaining committed to the business, and will not pull out at the least adversity.

WORKING CAPITAL
This enhanced requirement is exceptionally tough on a small growing business. Your lender wants assurance that you have enough money to meet the day-to-day operating expenses of your firm. This money (or assets that can be quickly converted to money) must be enough to pay all the current debts should anticipated earnings not come up to expectations. The lender subtracts your short-term debts from your convertible assets, and the residual (working capital) plus current earnings should be enough to carry you through one year of normal business. That's the way it works!

COLLATERAL
Collateral can be defined as something of yours the lender can sell to get his or her money back should your business venture fail. Business equipment at auction prices is usually not enough, and tough third-party appraisal rules make it exceedingly difficult to use real estate to meet collateral requirements. What lenders are looking for more and more are outsiders who will back your loan with their cash investment. This collateral requirement is relaxed should you qualify for a SBA backed loan, but the rest of your loan package better be plated in gold!

EARNINGS
Cash management of earnings is the new buzz. It's not enough to show a steady or improving stream of earnings, you must now prove the earnings are enough to meet your debt payments as they come due. Your cash flow statements must prove that money will be available at the right time and place to meet all regular debt payments. This means devising a spread sheet showing obligations (including the loan you are requesting) and projected income, then proving earnings will create the cash when needed.

RESOURCE MANAGEMENT
This is really a question: "Who are you and why should our firm trust you with our money?" Your lender wants either you or another major officer/owner in your company to have the education, experience, and motivation to manage the money they are lending you. This mens a proven track record in managing similar firms with similar problems. If you don't have these skills, you may find the money lender wants control of your checkbook!