Whether you are applying for an SBA loan or a traditional bank loan, there
are certain factors that improve your ability to obtain financing. This
self-test is designed to assist you in understanding important issues that
lenders consider when making a decision on a small business loan.

Do you have a good personal credit history?

Research indicates that good personal credit history is one of the most
important factors in identifying borrowers that will repay their business loans.
When a lender makes a decision on a small business loan, he/she will consider
the personal credit history of the borrower. A bad credit history can be the
basis for denial for a small business loan.

a) If you do not have a recent credit report, find out about ordering one
by calling TransUnion (www.transunion.com),
Experian (www.experian.com), or
Equifax (www.equifax.com). If you have credit problems but they can be
explained by a one-time incident such as a medical problem, provide information
to a potential lender about the problem and how it has been rectified.

b) If you have filed for bankruptcy in the past 7 years (10 yrs for an SBA loan),
or have slow payments, collections, etc. then it may be difficult to obtain
financing now. If your poor credit history can be explained by a particular
incident, supply information on the situation and how you attempted to repair
past credit problems. If you have consistent credit problems, you will need
to "repair" your credit history and rebuild your credit track history.
Call your local Consumer Credit Counseling Agency (CCCA) for assistance.
For the Arkansas CCCA nearest you, call 1-800-255-2227.

Do you have enough money of your own to put into the business?

(For start-up businesses)
All loan programs require that the business owner put their own money into
the business. This owner equity injection shows that the owner believes in
the business enough to risk his/her own money and reduces the amount of monthly
debt payments that the business must make. Virtually all loan programs,
including SBA loans, will require a reasonable contribution from the owner(s).
A good rule of thumb is 20% or more equity injection. The more equity, the
more favorably potential lenders will look upon the loan request. Neither
banks nor SBA provide 100% financing.

Have you filed your personal/business income and business taxes?

Lenders and government loan programs alike want to see that an individual has
met his/her tax obligations for both filing and paying taxes. Many of the
loan programs are in partnership with government agencies. These loan programs
do not look favorably on individuals or businesses who have unpaid income
and/or business taxes. For SBA loans, an income tax verification is obtained
from the IRS before a loan is closed.

Have you demonstrated that your business has the ability to repay a loan?

(For existing businesses)
If the business is profitable, this helps to demonstrate repayment ability of
the new debt. If a business is not profitable, it becomes very important to
prove how it will be profitable in the near future so that a loan can be
repaid. Arkansas Small Business Development Center (ASBDC) training seminars
and consulting can assist you in this process.

(For start-up businesses)
You must demonstrate that the business will be able to repay the loan payments.
It is very important that you find as much data as possible on comparable
businesses or industry statistics in order to "prove" the revenues you intend
to generate and the expenses you anticipate incurring. This is accomplished
by writing a business plan. Writing a business plan provides an organized
system for researching your business as well as insight into your business to
facilitate funding and investment. ASBDC live training seminars such as
"Starting a Business in Arkansas" and "How to Write a Business Plan" can
assist you in this process. The ASBDC also offers online training, including
"Crafting a Business Plan" and "Creating Financial Projections." For assistance
in locating industry research or information, contact your local ASBDC office.

• title="">Instructor-led training calendar

• title="">Online learning courses

Do you have any collateral to secure a business loan?

Business and personal assets can be considered collateral, or a way to
repay the loan if the business defaults on the loan. Most collateral is
valued at an amount less than market value based on a variety of factors.
Although the SBA will not deny a loan due solely to the lack of, or amount
of, collateral, the more collateral one has, the more likely a deal will be
favorably considered. Unwillingness to pledge assets can be a basis for
decline.

Does your business have a positive net worth?

(For existing businesses)
The net worth of the business should be positive. If there are loans from
shareholders on the balance sheet and you are able to subordinate these (not
pay the shareholders) while you pay the bank loan back, you may consider
these loans from shareholders as equity.

Does your business currently have low levels of debt?

(For existing businesses)
Businesses that have too much debt will find that their profits are directed
at paying back loans and not building retained earnings in the business that
can fund future growth. Consequently, banks and government loan programs look
more favorably at loan requests that do not add too much debt to the business.
Banks often look for a debt to net worth ratio of 3 or less (total liabilities
divided by equity). ASBDC consultants can assist you in assessing your debt
situation.

Are you willing to personally guarantee a loan?

Most business owners are asked for a personal guarantee in order to obtain a
business loan regardless of the legal structure of the business.

Does your business have managers and advisors capable of leading your business
to the next level of growth?

(For existing businesses)
As businesses expand, they need more sophisticated management as it relates
to strategic planning, marketing, record keeping, inventory control, personnel,
etc. If there are aspects of your business with which you need assistance,
we strongly recommend that you attend one of the ASBDC's entrepreneurial
training classes or contact the ASBDC for assistance.

Do you have experience in running your own business?

(For start-up businesses)
For a new business, it is important for the business owner to demonstrate
that he/she has experience in the industry and/or entrepreneurial experience.
If you have never owned or operated a small business before, we strongly
recommend that you attend one of the ASBDC's entrepreneurial training classes.

STOP: If you cannot answer yes to all the questions above, then you may have
difficulties obtaining financing at this time. We suggest that you evaluate
the needs of your business and take advantage of the ASBDC's live training
classes, online courses, or contact your local ASBDC office to speak to our
knowledgable staff.