Lending Criteria for Start-Up or Purchased Business

Key Factors in Granting Credit:

• Cash flow or debt service coverage

Depends on industry; however, a typical minimum debt service coverage is 1.2x. Debt service coverage calculation being defined as (Earnings before Interest, Depreciation & Amortization less Distributions) divided by (Annual Principal + Interest).

• Sources of repayment
• Credit history (business and personal on the owners)
• Feasibility of project
• Owner's equity position in project (General rule: 20% down payment or equity is required)

Required Financial Information - Start-Up Business

• Personal financial statements of all owners who own 20% or more of the business
• Last 3 years of federal tax returns for owners
• A Business Plan that includes:

1. Description of product or service

2. Ownership information, resumes, and responsibilities

3. Market analysis, including competition

4. Contingency plans

5. Loan request and uses of monies

6. Beginning balance sheet, reflecting owner's equity in business

7. Projected cash flow for 2 years, first year should reflect month-to-month

Required Financial Information - Purchased Business

• Last 3 years of federal tax returns of the business
• Year to Date balance sheet and income statement for business
• Recent Account Receivable & payable agings (if applicable)
• Inventory listing (if applicable)
• Personal financial statements of all owners who will own 20% or more of the business
• Last 3 years of federal tax returns for owners
• Business Plan
• Projected cash flow for two years