At Tom Vignali CPA, Inc., we have numerous clients who have requested assistance in applying for a loan. However daunting and arduous applying for and negotiating a loan might seem, we have developed a comprehensive step-by-step procedure to make the loan application and packaging process relatively simple. Over the years, we have worked with a variety of clients in applying for and obtaining loans ranging from $50K to $7.5MM. The following comments are related to existing businesses seeking financing. Financing for start-up businesses will be addressed in a future article.
To set some benchmarks, let’s assume that the business is solvent and has been in business for at least two years. (We do assist businesses in financial distress that are looking for financing, but that process requires additional steps, which will be discussed in a future article.)
What Will You Do With the Money and What Are the Risks?
Every business would love to have an infusion of cash into their bank account, but every lender wants to know what these funds will be used for and what the related risks are. It is critical to identify what the proceeds from the loan will be used for. Will they be used to stabilize finances, reduce interest, expand business, increase working capital, increase capital assets? The use of funds is a critical item to the loan process. Here are just a few examples:
Refinance / Consolidate Existing Debt
Working Capital – Expand Staff, Fund Operations
Capital Acquisition – Equipment
Capital Acquisition – Vehicles
Capital Acquisition – Real Estate
Capital Acquisition – Leasehold Improvements, Renovation, Expansion
Purchase Inventory – Raw Materials
Purchase Inventory – Finished Product
Fund R&D and Product Development
Business Acquisition
Business Transfer Of Ownership (Succession Transfer)
Each of the above examples has an impact on the finances of the business and the risk factor of the loan. In some instances, they provide a tangible asset that can be used as collateral. In other instances, they reduce the operating costs of the business or increase its revenue capabilities. It is important to identify how the proceeds of the loan will be used, and how they will impact the finances and operations of the business.
At Tom Vignali CPA, Inc., we assist our clients with the development of a detailed Application of Funds outline, which is integrated into all financial forecasts and projections.
Finding the Most Advantageous Lending Source
There are a variety of lending sources and types of loans out there. These include Commercial Banks, Community Banks, Credit Unions, Non-Bank Lenders, Government Guaranteed Lenders. Types of loans/financing include: Commercial Loans, SBA Guaranteed Loans, Factoring, Contract Financing, Purchase Order Financing, Construction Loans, Mortgages, Leases, etc.
Each of these sources and financing types have specific loan requirements that might be more or less favorable to the type of financing the business is looking for. Some only deal with fixed assets, some deal with working capital, and some blend assets and working capital. Some only fund receivables and some only fund equipment.
At Tom Vignali CPA, Inc., we assist our clients with the selection of the most advantageous type of lender and type of loan. We have a vast network of lending sources, which allows us to research potential interest in the proposed loan. This significantly reduces the time required to find a lender that is interested in the potential loan.
Getting Loan Terms That Work for You
The terms of the loan as proposed by a potential lender in a Letter of Intent is critical. Issues to be considered are:
Amortization Period: Number of years the loan is for
Monthly Payments
Balloon Payments
Interest Rates and adjustments to the rates
Guarantees
Financial reporting requirements
Loan Covenants
Collateral assignments
Lines of Credit
At Tom Vignali CPA, Inc., we work directly with potential lenders to develop a loan package that meets the needs of the applicant. In some instances, a supplemental line of credit in addition to the primary loan can help to make the financial package more affordable. We work directly with the applicant and the bank in developing financial projections that prove an ability to fund the proposed debt and identify adequate working capital and cash flow necessary to support the bank’s lending requirements.
Making the Application Process Easy
The loan application process can be complicated and confusing for many. Our extensive experience with this process reduces the complications and confusion. We determine the best lending sources to submit an application to. We compile all of the required documentation and negotiate the best available terms prior to receipt of a Letter of Intent from the lender. Historical, current, and projected financial data is developed and compiled including P&L’s, Balance Sheets, and Cash Flow Analysis. We perform “means testing” on financial projections to anticipate shortcomings in the financial projections, identifying various “worse case scenarios” to ascertain a break-even point, and combine these testings with strategies to mitigate any shortcomings. This process provides the potential lender with assurances that the applicant is prepared for all contingencies.
We serve as a liaison between the applicant and the potential lender from inception through closing. We manage all negotiations, document preparation and delivery, and make any modifications that are required during the application process. We make the process easy!
Loan Packaging: Items That Might Be Required
Some of these are sourced by the lender:
Loan Application (various lender forms)
Validation of Business: Corporate Charter, Structure, etc.
Ownership of Business
Letter of Good Standing (State Taxes)
Business Licenses
SBA Credit Score (if SBA Loan)
UCC Search
Flood Plain Search
Personal Credit Score (subject to Lender requirements)
Owner Personal Tax Returns
IRS Tax Transcripts
Personal Financial Statement
Personal Guarantors (subject to Lender requirements)
Proof of Citizenship (subject to Lender requirements)
Criminal Record Search
Past Due Child Support
Past Due Student Loans
Delinquent Taxes Personal (State, Federal, Municipal)
Outstanding / Pending Litigation (Personal)
Bankruptcy (Personal)
Corporate Guarantors (subject to Lender requirements)
Business Tax Returns (usually last 3 years)
IRS Tax Transcripts
Delinquent Taxes Business (State, Federal, Municipal)
Business Financial Statements P&L and Balance Sheet (usually last 3 years)
Business Interim Financial Statements P&L and Balance Sheet
Business Bank Statements
Business Loans
Business Leases
Outstanding / Pending Litigation (Business)
Bankruptcy (Business)
Franchise Agreements (if applicable)
Insurance Documentation
Application of Funds Schedule with Documentation
Pro-Forma Financial Statements P&L, Cash Flow, Balance Sheet (year 1: monthly / years 2&3 quarterly)
Appraisals (Equipment, Real Estate, Inventory, etc.)
The above list identifies many of the types of documents that might be required by the lender. Some are discretionary and might not be required. Some are documents that the lender will obtain on their own once an application has been made. There are numerous other documents that might be required by the lender depending upon the lender’s policies or the type of loan being applied for.
As stated earlier, at Tom Vignali CPA, Inc., we serve as a liaison between the applicant and the potential lender from inception through closing. We manage all negotiations, document preparation and delivery, and make any modifications that are required during the application process.
We make the process easy!
If you would like to further discuss this process, don’t hesitate to contact us at: Tom Vignali CPA, Inc.
Contact Us:
Thomas W. Vignali CPA Inc.
118 Point Judith Road
Narragansett, RI 02882
T: (401) 415-0798
tom@tomvignalicpa.com
www.tomvignalicpa.com
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