By Debbie Cornelius

Small business owners tend to be so involved with running the day-to-day operations of their businesses they can overlook critical aspects in applying for a business loan.

Some common mistakes are:

• Failing to provide a complete package of information needed to make a loan decision
  
• Improperly prepared business financial statements
  
• Failing to thoroughly complete a personal financial statement
  
• Not cleaning up personal credit issues or having too much personal debt
  
• Failing to show sufficient personal income to pay monthly expenses
• Not allowing enough time for processing the loan application before the funds are needed

Fortunately, there are a number of proven ways to improve your odds of getting the loan you want.

Schedule a Meeting
You should meet with a banker before requesting a loan. This process is beneficial in finding out whether the bank provides financing for the type of business you own or plan to start. Discuss your ideas and plans to get an indication of whether the relationship will be a good fit for both you and the bank. Some banks specialize in personal and retail banking and would not be the best fit for a business loan request. Establishing a relationship with the right banker can make a huge difference in getting a loan approved.

Ask what information will be needed in order to make a loan decision. While most documentation required is pretty standard, there may be other information necessary to underwrite your specific type of business. Also provide as much background information on the business and industry as possible to give a thorough understanding of how your company works. Include who the customer base is, who the competition is and what sets your company apart from others in your industry.

Personal Financials
In addition to business financial statements, you also will be required to provide a personal financial statement and three years of personal tax returns. Including a copy of your résumé will show how much experience you have in operating a business or in your industry.

There is a defined process that each bank follows when approving a loan (underwriting). The underwriting process can take a couple of days or a couple of weeks, depending on the size of the loan request. Commercial loans are not based on personal credit scores alone.

During the underwriting process, a trend analysis review of the historical profitability and cash flows of the business financial statements and tax returns will be done to determine the ability to repay the loan. This is a critical part of the process. Therefore, the financial statements must be accurate. Business owners tend to use accounting programs that are wonderful in running the day-to-day operations, but they fail to update the information from the accountant-prepared tax returns, which leaves possible confusion with the analysis of information. Business owners sometimes include personal assets and personal debt on their balance sheet, which muddies the analysis process.

Balance Sheet Review
In addition to analyzing the cash flow and ability to repay the debt, the bank also will review the balance sheet for collateral. Business owners are sometimes confused about what constitutes collateral. Leasehold improvements, marketing materials, limited-use inventory, perishable inventory and good will are not considered collateral. Another common misconception is pledging a 401(k), IRA or retirement account. None of these types of accounts are assignable-no exceptions.

Good personal credit is especially important to a small business owner because "you are the business." Clean up any bad marks, pay off any collection items and include an explanation of any negative information that might be out there. The bank will review your personal tax returns and financial statements to verify that you could cover the business loan in the event the business had a downward trend. Do not include business assets on the personal financial statement, and don't overstate or understate your income or assets.

To improve your odds of getting a loan approved, establish a relationship with the right banker and avoid the six common mistakes above when applying for a loan. If your loan does not get approved on the first try, do not be disappointed. Ask what you can do to improve the odds of getting an approval.

Debbie Cornelius is vice president of commercial lending for Capital City Bank. You can reach her at .