In 2008, when the economy dropped into the doldrums, consumers put away their wallets to wait out the lean years. But a slow, steady recovery has finally heralded consumers’ return to confidence. In fact, over the past two years, personal income grew steadily in the U.S. According to the Bureau of Economic Analysis, personal consumption expenditures have increased every quarter since January 2010.
If your business is buoyed by this economic change and is experiencing growth, you want to meet the demands. But maybe you don’t have the funds readily available. Whether you need to expand your space, hire more employees or upgrade your technology, a small business loan might be a good option.
BANKING ON YOUR BALANCE SHEET
Before you approach lenders, here’s what you need to know that will help you land that loan. The first thing a lender will review is your balance sheet. A business with a debt-to-equity ratio (sometimes called leverage ratio) between 1-to-2 and 1-to-1 is generally considered in good standing (however, different thresholds may apply in different industries). For example, if your business has $75,000 in total debt and $125,000 in total assets, your debt-to-equity may make the grade. Next in line of importance is to measure current assets against current liabilities, called a current ratio. A 2-to-1 ratio, where assets are twice the liabilities, is generally considered good, but a 1-to-1 ratio may be acceptable, too. Satisfactory ratios vary by industry.
Lenders will also want to look at your balance sheet from either the previous quarter or for a full year. They will compare your balance sheet with a comparable business of similar size to see how you measure up. Finally, cash flow, defined as net income plus depreciation, will be scrutinized.
PREPARE FOR YOUR BUSINESS LOAN
Lenders need certain information to determine whether to loan money. You’ll want to present your potential lender with everything necessary to get the ball rolling.
LET US HELP
If you’re ready to expand your business, Hanscom FCU is ready to help you understand what you need to take the next steps. Contact Phil Purcell, VP Commercial Lending, at 781-698-2186 to find out more about how to qualify for a business loan. We can help you find one that meets your needs.