In order to take advantage of potential options in bank financing, prepare your business with these five tasks.

1. Review your business credit profile and history.

The first thing banks typically look for is a strong credit history. Before you apply for financing, pull your business credit report and review your business credit profile and history. If you spot an error, request a dispute form from the agency within 30 days of receiving your report.

2. Evaluate your personal credit profile and history.

Banks also consider your personal credit history, which should reflect responsible spending and repayment. A lender will pull your personal credit report so be sure to do the same ahead of time. Carefully review your personal credit report to ensure that it's accurate. Again, if you spot an error, request a dispute form from the agency within 30 days of receiving your report.

3. Calculate your debt-to-income ratio.

Your debt-to-income ratio — how much money you owe every month relative to how much money you make — helps banks determine how risky it is to loan you money. The lower your ratio, the less risky you are to lenders.

The sum of all your monthly debt payments ÷ Your gross monthly income = Your debt-to-income ratio

Again, both your personal and business finances matter. On the business side, a bank will be determining, Does the company generate a positive cash flow? On the personal side, Are you generating enough income to support not only your current debt load, but also the proposed debt that you're asking to take on?

Be prepared to verify your business and personal incomes with tax returns from the past three years.

4. Examine your business credentials.

When assessing your creditworthiness, banks also look at your business's basic information. Be prepared to discuss the following:

  • Your industry: Lenders typically view some industries, such as construction and foodservice, as risky. Businesses in these industries may be more susceptible to cash flow fluctuations due to factors outside of their control, such as local economic or weather conditions. Dental practices and other professional services, on the other hand, may be considered more stable.
  • Your experience: A young business is a riskier investment than one with an established customer base and deep industry experience.
  • Your business goals: Bankers will ask how you intend to use the funding in order to present appropriate credit options for your review - for example, a revolving line of credit versus a term loan. 

5. Check in with your banker.

Regular visits will help a banker get to know you as well as understand your business and industry. Building a relationship with your banker also helps when you're ready to request a loan, because the purpose and need for it may already be understood.

Information you will be asked to provide will vary depending on the type of financing you seek, but all requests for credit should demonstrate that you handle your finances responsibly and have the capacity to repay your debt.

Wells Fargo offers many different credit and financing products. Smaller requests may be based on stated incomes which do not require a business plan. However, if you are looking for a larger loan, a Small Business Administration (SBA) loan, or a line of credit, you will need to submit a business plan along with financial statements. These statements would document your business performance or financial capacity (for newer businesses) as required by your banker.

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