Requirements for Business Debt Consolidation / Refinancing

In this article, we discuss the requirements for a business debt consolidation and refinancing loan. Qualification requirements vary by lender. However, most lenders in this market have similar requirements.

In our case, we work specifically with small companies that have:

  1. At least $500,000 in debt
  2. A minimum history of 3 years in business
  3. Equipment and/or real estate
  4. Up to date taxes (or a payment plan in place)

Step 1: Initial qualification questions

The first step in the qualification process is for lenders to take you through a discussion of your situation. The objective of this conversation is to determine if your company is a good candidate for debt refinancing. This conversation covers five subjects:

a. Do you have reasonable personal credit?

To qualify for a business debt consolidation you must have a minimum personal credit of 650. Business owners are often puzzled as to why their personal credit is relevant for a business loan. Although clients are looking for a business loan, lenders use your personal credit as a gauge of how you manage your finances. In this case, they see it as a gauge of how you will manage their money.

b. Have you, or the company, ever defaulted on a federal loan?

This is an important point – especially if you are looking for an SBA guaranteed loan. Defaulting on a federal loan disqualifies you from getting a new one. Federal loans include previous SBA loans, mortgages from Freddy Mac or Fannie Mae, and most student loans. Federal loans that were discharged during bankruptcy also fall under this category.

c. Is the company profitable?

It is easier to consolidate and refinance the debt of a company that is profitable. Profitable companies represent a lower risk to the lender. However, many companies that seek to refinance expensive debt are not profitable. Actually, they must refinance the debt so they can become profitable. If your company is not profitable, you must provide the lender with a financial forecast. The forecast must show how the lower debt service returns your company to company profitability.

d. How will you use the loan proceeds?

The proceeds of the new loan must be used to close out previous loan facilities. Additionally, you can also use part of the proceeds to buy new assets, such as equipment.

e. Are you personal and corporate taxes in order?

Lastly, the lender will discuss your taxes to determine if they are in order. This includes both personal and corporate taxes. Note that transactions can be delayed if taxes are not in order and up to date.

Step 2: Documentation requirements

The loan application process requires that you submit a number of personal and corporate documents. If your company is well organized, getting these should be relatively easy. This section covers the documents that companies must submit to their lender.

a. Personal documents

During your application, you will need to submit the following personal documents:

  1. Three years of tax returns
  2. Personal financial statement for all owners
  3. Form 1919 – borrower information sheet

b. Corporate documents

You will also need to submit the following corporate documents:

  1. Three years of corporate returns (those listed in the personal K-1 statements)
  2. Most recent Profit and Loss statement and Balance Sheet
  3. Previous 2-3 years of Profit and Loss statements and Balance Sheets
  4. Corporate debt schedule. Lists all debt (needed for all entities)
  5. Equipment list, along with current market value
  6. Projection of future sales (needed if the company is losing money)

Step 3: Prior to closing

Lastly, prior to closing the loan, you must submit the following information for all loans that are being refinanced:

  • Original loan documents
  • 12 months payment history

These last two requirements can delay transactions at the last minute. Consequently, it’s best to gather these documents early in the process. The 12-month payment history must be generated by your lender. Unfortunately, self-generated documents from Quickbooks or Excel won’t work.

Need to consolidate and refinance business debt?

For information about our business debt refinancing and consolidation program please don’t call the number above. Instead, fill out this form – a specialized agent will contact you.