Dear M & M: How do I go about getting a loan for my business? — Jake

Dear Jake: This isn’t a five simple steps to get a loan plan. Getting a loan for any business requires a well thought out plan and is a journey.

The first thing to consider is do you qualify for a loan? What is your credit score or history of paying your bills? You should at a minimum have a 680 credit score or above.

Do you make enough money to pay the amount borrowed back? A good rule of thumb is that your income should be at least 1.25 times your total expenses, including this new proposed loan. For example, if your business income is $10,000 a month and you are already paying $7,000 in business expenses in rent, wages and other business expenses you should be able to qualify for an additional $1,000 a month in payments totaling $8,000. Here’s the math: $8,000 is 1.25% of $10,000 you are already paying for and meeting your obligations with the current $7,000 a month in expenses. Therefore you are eligible for an additional $1,000 in expenses based on an income of $10,000.

Keep in mind most small business loans require you to have been in business for more than a year. Every lender has different requirements from interest rates to debt to equity to what type of a business they are willing to do a loan for.

Now it’s time to find a lender likely to make the loan from the pool of eligible lenders from traditional banks, credit unions, crowdfunding, private investors, friends, family and fools. Now it’s time to gather documents you will need. This includes business and personal income tax returns, business and personal bank statements, business plans, business and personal financial statements and company legal documents, from franchise agreements to the articles of your organization.

Finally, filling out the loan application or going through the process to give your lender whatever they need to show your ability to pay them back. Your business plan should tell what you are going to spend the money on. Included in this plan is what you have for collateral to back up the loan in case anything goes wrong.

Remember, you are linking your personal credit history to all of this. Credit bureaus don’t differentiate between personal and business.

ASK M&M is prepared and submitted by Mark Schmitt, director of the Small Business Development Center at Cochise College; and Mignonne Hollis, executive director at the Arizona Economic Development Foundation. To ask your questions: Call the Small Business Development Center (SBDC) at Cochise College (520) 515-5478 or email schmittm@cochise.edu or contact the Arizona Regional’ Economic Development Foundation at (520) 458-6948 or email hollism@aredf.org; www.aredf.org.