Checking your own finances before the bank does

The short version

• A lender will go through your personal finances in detail. Go through them first.
• Pull your credit reports, fix errors and know your scores.
• Document where your down payment comes from, and keep it in place.
• Plan for a lower and less predictable income in the first year.
• Talk through the risk with your spouse or partner before you apply, not at closing.

Your credit

Pull your credit reports from all three national credit bureaus. You can get them free at AnnualCreditReport.com, the site authorized by federal law. Check for errors, old accounts that should be closed and balances that are higher than you thought. Dispute errors early. Corrections can take weeks.

Avoid opening new credit or taking on large purchases, such as a car, while you are looking and applying.

Your cash

Lenders want to see where your down payment comes from and how long you have had it.

• Keep it in place. Large, recent moves of money raise questions. If you must move funds, keep clear records.
• Gifts from family usually need a signed letter saying the money does not need to be repaid.
• Borrowed money, such as a home equity loan, may or may not count toward your share. Ask your lender before you borrow.
• Retirement savings used through a ROBS structure take time to set up. Lesson B3.1 covers this.

Your personal financial statement

List what you own and what you owe: bank accounts, investments, retirement accounts, real estate, vehicles, mortgages, loans and credit cards. SBA lenders ask for this on SBA Form 413. Lesson B3.2 explains it. Having it ready, and accurate, makes you look prepared.

Your taxes

Make sure your recent personal tax returns are filed and any balance owed is paid or on a payment plan. Unfiled returns or unpaid taxes can stop a loan.

Your household budget

Your income may drop in the first year and arrive less regularly than a paycheck. Work out:

• What your household needs each month to live.
• How many months of personal reserves you will have after closing.
• What happens if the business needs more cash than planned.

Your spouse or partner

A business loan can involve your home and your savings. Lesson B2.4 covers the personal guarantee. Make sure your spouse or partner understands the commitment before you apply.