Guide to Business Loans: 

What are the options and how should you prepare?

Position your business for growth.

The basics of borrowing are relatively simple, but get more complex as your business grows and prospers. It is Flagship's goal to help the entrepreneur choose the right business loan to accomplish his or her overarching goals and successfully leverage the business for growth.

"Before anything else, preparation is the key to success." Alexander Graham Bell

Preparation is the necessity of all applications of funding. From investor capital to debt financing, the proper planning and organization can help you reduce equity dilution, interest costs and/or improve efficiencies in the application process. Here's a summary of what to expect when applying for a business loan.

  • Request
  • Initial delivery items 
  • Analysis 
  • Business loan options


Before approaching a financial institution for financing your business, it's important to identify and organize your request. We like it to think of it as:

  • How much?
  • For what?
  • How Long?
  • How will it be repaid?
  • What is the collateral?

These five simple questions will steer much of the discussion on what type of loan your business needs and ultimately position your company well for the underwriting and approval stages of your business loan request.

A great example is a local manufacturing plant that has been seeing great growth but needs to add some heavy machinery to their line to reduce costs and improve speeds. Their overview may be:

Dear Flagship Bank, we are reaching out today because we want to buy a $500,000 piece of manufacturing equipment to reduce our expenses by $100,000 over the next 12 months and improve our throughput times. We expect the useful life to be 10 years and are looking for a seven year loan. The repayment will come from existing cash flow and cost savings. We are willing to pledge a purchase money security interest in the equipment and potentially all business assets of the business.

Another example that we see often is when the business is looking to acquire real estate:

Dear Flagship Bank, we are reaching out today because we want to buy this 24,000 SF office/industrial building in Anoka, MN for $1,500,000. We expect the purchase to reduce our long-term facilities costs as we move from leasing our current space to owning our new space. The building was built in 2001 and is in good condition. We have some small improvements we will need to make that will cost us $250,000 so that our business can move into the space as desired. The new building should be large enough to support our business requirements for the foreseeable future and we plan to repay the loan with our business cash flow and rental savings.

The two examples provide a quick and easy overview of the request. Our lender will use this as he or she meets with you to discuss and work on a customized proposal.

Initial Delivery Items

Banks need to review financial information to understand the history of results and get a snapshot of how your business is trending. If you own a start-up or newer business, we will rely more heavily on strong personal credit, management experience and collateral to underwrite and review your request. So let's get started with what you will need to prepare:

Brief history of company, ownership and management

We're interested in not only the financials but also the story of your business. It's one of the best parts of being a relationship bank. This allows us to provide customized and creative solutions to meet your needs. The business's history, the management experience, and the breakdown of ownership allow us to better understand the character of the business.

Three years business and personal tax returns

At Flagship Bank, we use your business and personal tax returns to gauge your capacity to repay the loan requested. Net income, depreciation, interest, liquidity and capital are all used to understand the numbers behind the request. A great tip when providing your information is to note any one-time items that may have affected your results both positively or negatively. Examples could be a customer charge off or alternatively a major non-recurring sale. Our goal is to understand the stability of the cash flow so we can accurately forecast cash flows on a going forward basis.

A current personal financial statement of the primary principals and/or guarantors

It's common for Flagship Bank to get asked why do we need a personal financial statement for a business loan? We do because it allows us to better understand the overall financial profile of the business and its principals. We like to see both financial profiles are stable and cash flow positive. Furthermore, it is more often than not a guaranty from the principals is required.

A current income statement and balance sheet

We understand your business is operating in a dynamic market and has a changing customer base. We also notice that often tax returns are completed months subsequent the end of year. A current income statement and balance sheet allow Flagship Bank insight into how the business is operating today. Did you sign a material new customer or lose an existing customer? What's the current sales activity? Have you acquired any new business equipment or do you have depreciated equipment that could be used as collateral? Be honest and as complete as you can. Providing incomplete data only delays the decision and hurts everyone's ability to get a quick, reliable proposal.

Sales, accounts receivable and accounts payable concentrations

A common risk with any business is concentration in sales. At Flagship Bank, we are most interested in any of your sales concentrations above 10% of your gross sales and concentrations in your accounts receivable. Likewise, we want to understand how the company is sitting with their accounts payable and will generally look closely at your accounts payable report as part of the underwriting process to review the amount of accounts owed and any concentrations. As a result, it's good practice to have a sales concentration report prepared along with aging accounts receivable and accounts payable reports.

Purchase agreements

Providing the purchase agreement or invoice to Flagship Bank as part of acquisition financing of the equipment and/or real estate allows Flagship to understand what exactly is being acquired and at what terms. We request the purchase agreement to verify the purchase but also because there are soft costs that are sometimes not financeable with debt proceeds. These are usually costs such as legal, commissions, etc… that don't provide tangible value to the item being purchased and are more transactional in nature.

Click here for a complete copy of our commercial loan applicant checklist.

After reviewing the deliverables, it's easy to understand why preparation speeds the loan application process. Organized information allows for streamlined processing and more in-depth discussions to help both you and the bank structure a valued partnership.


The basis of a good relationship is building trust and rapport. Likely by the credit underwriting stage, we've received the requested information and had a meeting to discuss the business, its plans, and the subject request. Our goals with the underwriting process are to verify the information received for accuracy and assess the inherent risk of making the loan that may not have been readily apparent to the lender. This is where keeping organized and detailed financials becomes a strength to your business and your loan request. We want to keep the process streamlined so we can get you a reliable and quick loan proposal for your new project.

Our credit department takes pride in completing an efficient review of your overall business and personal financial picture so we can provide valuable insights into your business along with your proposal. It's not uncommon to find our lenders providing trusted advice which has saved Flagship customer's time and money.

Key metrics to keep in mind for the credit underwriting process:

  • Debt Service Coverage Ratio = Earnings before Taxes, Interest, Depreciation & Amortization / Debt Service Payments
  • UCA Cash Flow Coverage Ratio = Net Cash after Operations / Current Portion of Debt + Interest Expense
  • Current Ratio = Current assets / current liabilities
  • Quick Ratio = (Cash and equivalents + marketable securities + accounts receivable) / current liabilities
  • Net Income to Industry Peer Average
  • Debt to Tangible Net Worth Ratio as compared to Industry Peer Average
  • Profit Retention Trend = Net Income less Distributions/Dividends
  • Revenue Growth Trend
  • Loan to Discounted Value

We understand and appreciate that these are not necessarily key success factors to your business but they are some of the key metrics banks like Flagship use to measure your success and credit worthiness.

Business Loan Options

As part of the request and resulting analysis, Flagship reviews the options that are available to your business. In some cases, the transaction is a simple equipment or real estate loan transaction; while in others, the transaction can be rather complex and require creativity and customization to accomplish your goals.

Flagship Bank will look at all the options, including working with local municipalities like Minneapolis's Community Planning & Economic Development business loan programs or St. Paul's business financial assistance programs. Our experience lending to many industries like professional services, construction, investment real estate, and nonprofit organizations also gives us the knowledge to provide a thoughtful proposals to accomplish your goals. So what are some of the loan options for your business?

Business Line of Credit

A business line of credit gives you cash to meet a whole variety of business needs. Draw on your business line of credit to buy inventory, get more working capital, refinance other debts, handle seasonal cash flow gaps or take advantage of a short-term opportunity. A business line of credit is generally interest only and carries a variable loan rate with a term up to 12 months. The availability of the line of credit is based on the collateral provided. It can be equipment, accounts receivable and/or inventory that is often times subject to a borrowing base certificate and regular reporting.

Business Term Loan

One of the most traditional methods of business financing is the term loan. Business term loans are generally used to make long term capital improvements in your business, including the purchase of fixed assets, investing in tenant improvements, acquiring new businesses, and/or investing in new technologies. In this loan option, you receive a lump sum payment and pay it back over a specific period of time, also known as the amortization period. Interest rates can be either fixed or variable rates.

Business Real Estate Loan

If your business is acquiring or refinancing real estate for investment or for occupancy, a business real estate loan is for you. The loan can take many forms: construction, term loan, or line of credit and as such, you can expect to see both fixed and variable rates. Usually for a commercial real estate loan you will not see fixed rates longer than 15 years and in many cases borrowers go with a three or five year fixed rate. Leverage is usually up to 75-80% of the property's value with amortizations over 15-25 years.

Click here to read more about business loan programs in Minneapolis and St. Paul.

SBA Loan Options

A common misconception is that the Small Business Administration (SBA) makes loans directly to entrepreneurs to start or grow a business. Instead, it provides a guarantee to banks like Flagship or other lenders for the money it lends to small businesses owners. This guarantee protects lenders interests by promising to pay a portion of the loan back if the business owner defaults on the loan. So when a business applies for an SBA loan, it is actually applying for a commercial loan through Flagship, structured according to SBA requirements with an SBA guarantee. A key consideration when looking at an SBA loan option is the costs to close and the collateral requirements. An SBA guarantee does come at a cost and we would encourage you to review the investment vs a traditional loan opportunity. The two most common types of SBA loans are the SBA 504 and the 7a loan.

SBA 504

The SBA 504 Loan Program provides long-term, fixed-rate financing to assist small businesses expand by acquiring land, buildings, machinery and equipment. The loans are administered by Certified Development Companies in conjunction with Flagship Bank and allow for 10 or 20 year fixed rates and as little as 10% down payments. These are a great option for the business owner who is acquiring real estate to be used by their business.

SBA 7a

The most common of the SBA loan programs, 7(a) loans can be used for the purchase of equipment or inventory, purchase or expansion of a business, working capital, and refinancing debt. With terms up to 7 years for working capital, 10 years for purchases and 25 years for real estate; the SBA 7(a) program can help your growing business.

Maneuvering through the business loan process can be time consuming, and the uncertainty can be nerve racking. It's best mitigated by proper preparation and working with a knowledgeable and creative financial institution. At Flagship Bank, we work to limit the complexity in its financing. Make an appointment today to see how Flagship Bank is Investing in you.

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