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Jonathan Patrick

*Note - this material is useful for people looking to borrow money for their business. If you are looking to start a business as a commercial loan broker and/or officer at a lender this information is also available in my course "Commercial Loan Broker in a Box", along with more information about how to run such a business (such as email templates for prospects, referral partners, and more).

Not every business needs capital to grow. But to those that do, the process can be intimidating. And not understanding how business lending works can cost you energy, money, and time.

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*Note - this material is useful for people looking to borrow money for their business. If you are looking to start a business as a commercial loan broker and/or officer at a lender this information is also available in my course "Commercial Loan Broker in a Box", along with more information about how to run such a business (such as email templates for prospects, referral partners, and more).

Not every business needs capital to grow. But to those that do, the process can be intimidating. And not understanding how business lending works can cost you energy, money, and time.

Here's the good news. As someone that has been involved in over $ And I am going to teach you.

No more frustration from being turned down over and over.

In this course, I will take you through the various technical aspects of how business loans work.

I'll guide you through over 30 video lessons (with some accompanying written explanations) detailing an inside look into the types of information lenders ask for and why they ask for it.

In a few hours, you will know as much as most lenders. Imagine how much easier that will make your next business loan application feel.

P.S. Please note that the lessons were intentionally kept short. This course was designed with beginners in mind and to extend the lessons deeper could cause confusion. Additionally, by reducing production efforts I am able to keep the course affordable. Don't worry, what you will learn in a short amount of time will be more than enough to improve your chances of getting funded.

*Note* - Please be aware that I recorded new versions of some of the lessons to improve the experience. So, you may see some inconsistencies in formatting and other changes.

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What's inside

Learning objectives

  • Better understand the business lending process
  • Know how to calculate the key ratios lenders look at
  • Be better prepared to negotiate favorable terms and rates
  • Get a loan

Syllabus

Introduction to the course and structure

Business owner and/or startup looking to fund your company's growth through business loans? Then this course is for you. By the end of our time together you will know exactly how lender's evaluate loan requests and how to negotiate the best rate and terms.

Read more

A bit about me. See additional resource link to a brief bio on my personal website.

In this lesson I share with you what lenders are looking for in a loan, how they get paid back through what is called "sources of repayment" and more.

Defining some of the key acronyms and terms I will be using in this course.

Every loan request has a reason behind it. Lenders call this the loan purpose. i.e. What is the loan for? Your loan purpose will drive literally your entire conversation with lenders.

Every lender has an "appetite" for certain types of loans. Make sure that lenders you approach are used to giving loans to businesses like yours.

In this lesson I walk you through the various phases of a loan application. Including what you need to know at each phase and what documents you will have to have.

How do banks get paid back for business loans

In this lesson, I discuss the three main things that most lenders look for in a business loan.

How do banks decide to approve business loans

How do banks calculate cash flow

In this lesson, I share an example of how to calculate the DSCR on a loan.

Do backs prefer secured or unsecured loans

How loan collateral works and how to calculate loan-to-value ratios with examples.

In this lesson, we go over what liquidity is, why it matters, and how your lender will calculate your personal liquidity.

In this lesson, I talk about personal guarantees and why you will most likely be asked to sign one. Plus, we talk about the difference between full and limited guarantees.

In this lesson, I talk about two main factors in determining how long your business loan will be good for. They are loans terms and loan amortization.

How do lenders grade loans

How are business loan rates determined

This updated video briefly covers how business loan rates are set.

Do business loans have maximum and minimum rates

How can I get a business loan for investment property

How do SBA loans work

The Small Business Administration (SBA) has a program called the Economic Injury Disaster Loan (EIDL) program.

During March of 2020 the U.S. government gave the SBA additional funding to distribute to small business owners impacted by the coronavirus and its impact on the economy. Those funds were to be awarded through the EIDL program.

This lesson covers the details of that program, how it works, and the forms and documents you need to submit.

How do lenders show they have approved my loan

Can I pay off business loans early

What restrictions do business loans have

What are the costs for business loans

So, how long does it take to get a loan these days? 

Well, even with the advances in technology that are being used to speed up the lending process, you should expect it to take longer than you want.

There is no question that certain types of small business loans take longer than others. But before we get to that, let’s talk about the various stages of the loan process. 

I was declined for a business loan. What now

Some loans act like grants. Some grants act like loans in that they have extensive application processes behind them.

Real estate investing loans

Lenders, by nature, are risk adverse. They like to make loans where they have a relative level of comfort that they will be paid back. So, getting real estate investing loans approved can be a challenge. Today, I want to share how real estate investing loans work and how to best go about getting approved for them.

More specifically, I want to talk about investing in rental real estate. Not real estate that you purchase for your own, or your businesses, use.

OO versus NOO

One note on that - any property where you occupy more than 50% of the square footage is considered owner-occupied. Anything less is called non-owner occupied. The key significance is the percentage of funding a lender will provide. 

For example, on owner-occupied properties lenders will often fund up to 75-80% of the value or purchase price, whichever is less. On non-owner occupied properties that percentage falls to 65-75%. On a large loan that percentage difference can mean you are coming up with some significant cash down.

The property should stand on its own

Ok, now that we have determined we are talking about NOO properties today, lets talk about what a lender is looking at when they are evaluating real estate investing loans.

You may recall that getting approved for a loan is almost always about proving the ability to repay the loan. And the primary source of repayment is cashflow. So, in the case of rental properties the lender is going to gauge the properties ability to make the loan payments without any assistance from you as a guarantor. 

Meaning, the rental income you anticipate earning, or already have in place through an existing lease, should yield a profit when compared to the loan payment and any associated expenses. 

Those other expenses will include some consideration for potential vacancies (usually 5% of annual income) and a property management company (another 5-10%) if you plan to use one. 

When most people ask me about so-called “hard money lenders” they are more times than not looking for access to lenders that are willing to take on more risk because they believe, or know, they can’t qualify for a traditional business loan.

The thing is, that isn’t entirely what hard money lenders are all about. So, let’s take a look at what a hard money lender is and how they work.

What is a merchant cash advance?

A merchant cash advance is a type of business loan where the lender extends you a loan, usually a line of credit, based on the number of sales you have coming in each month. The lender uses the income from your sales activities to recoup the payment you owe on the loan. 

This type of loan is always unsecured, meaning that you don’t have to sign over any sort of collateral like in a hard money loan. Or, do you?

What is a factoring loan?

A factoring loan, also known as an asset-based loan, is a type of business loan where the lender is willing to provide credit based on the amount of revenue the borrower is anticipating having in the near future. 

When a business allows their clients to pay them over a period of time, otherwise known as “on terms”, they have become a lender themselves. The business makes the sale and then invoices their client requesting payment in the near future. That period of time is often 30-90 days. However, in some circumstances, the client takes their time paying the business. 

In situations like these, the business can run short on the cash needed to pay its bills such as payroll and other operating expenses. That is when a factoring loan makes sense for the business. 

This lesson comes from a student request.

When a lender wants to reduce their risk associated with a loan or a group of loans they often ask other lenders to get involved. That can come in the form of a participation or syndication loan.

In a previous lesson I taught you how real estate loans work. In this lesson I go into more detail about the best loan you can get as a real estate investor - a guidance line of credit.

This lesson explains how I intend to deliver the material. In short, mostly via lecture format. However, be on the lookout for additional resources after each lesson. Particularly, sections where I lay out the key take-aways.

Also, I intentionally kept the video length for most of the lectures very short. The fact is that I could have just as intentionally rambled on to make my course seem longer, and thereby perhaps more important. But I have spent years boiling this material down to the basics and only wanted to take enough of your time needed to get you the information you need.

That's also why I have shared handouts for most lectures that reiterate the material and allow you to download them.

Lastly, since 80% of the loan approval is financially driven, make sure to spend a large part of your time on this course by using the Business Loan worksheet in Lecture 17. In fact, once you have completed this I highly recommend you save it and share with lenders you speak with.

Good luck!

Too many borrowers apply for business loans with any and ever lender you can find. We call this a shotgun approach. Its a mistake to apply for business loans this way. Be more targeted with your efforts.

A lender's loan portfolio, and its performance, can affect their likelihood to approve your loan.

What industries are easiest to get business loans for? The ones with the best historical performance.

What percentage of loans do lenders expect to lose

First of three quizzes for the course. No pressure!

How long does it take to get a business loan

What documents are needed to apply for a business loan?

How do credit scores effect business loans

The attached workbook was designed to walk you through the process of analyzing your financial position in the way a lender would, including calculating the "Big Three" for you. Just plug in the appropriate numbers in the fields and the spreadsheet will run the calculations for you.

If you run into any questions please add them in the course directly so that other students will benefit from the answer(s) as well.

What collateral do banks require

How long can a business loan be for

How are business loan payments calculated

Small business loan rates can vary depending on a variety of factors. 

Most lenders use something called a “risk grade” to determine the rate they will offer you once approved. That risk grade often takes into account things like your debt-service coverage ratio, credit ratings (both personal and business), and other factors.

Those factors are then weighed and converted into a score (usually on a numeric scale) that the lender then uses to determine your rate. 

How can I get a loan rate discount

Traffic lights

Read about what's good
what should give you pause
and possible dealbreakers
Breaks down the business lending process, which can help business owners navigate loan applications with greater confidence and improve their chances of securing funding
Covers key financial ratios and metrics, which are essential for understanding how lenders evaluate loan applications and for negotiating favorable loan terms
Includes lessons on SBA loans and EIDL programs, which may be particularly relevant for small businesses seeking government-backed financing options
Designed with beginners in mind, which makes it accessible to those with limited prior knowledge of business lending and financial concepts
Includes lessons that were recorded at different times, which may lead to inconsistencies in formatting and presentation that could be distracting to some learners
Includes lessons on topics such as merchant cash advances and factoring loans, which may involve complex financial instruments and higher levels of risk

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Reviews summary

Understanding the business loan process

According to students, this course provides a practical and understandable guide for navigating the business loan process, especially for beginners. Learners appreciate the instructor's clear explanations of how lenders think and evaluate applications. Many found the concepts easy to grasp and the short video lessons efficient for quick learning. The included worksheets and templates are highlighted as particularly helpful tools for preparing applications. While widely praised for providing a solid foundation and improving chances of securing funding, some more experienced borrowers felt parts were too basic for their needs, suggesting it's best suited for those new to business borrowing.
Discusses different loan options.
"It covers different types of loans like SBA, real estate, and hard money."
"I learned about options I hadn't considered, like factoring loans."
"Good overview of the landscape of business financing options available."
"Explores differences between secured and unsecured lending."
Videos are concise and efficient.
"I liked that the videos were short and to the point, fitting into my busy schedule."
"Great for quick learning, the short lessons helped me stay focused."
"Efficiently delivered information in bite-sized videos that were easy to digest."
"Didn't feel like my time was being wasted with filler content."
Concepts are easy to understand.
"The instructor explained everything in a very clear and concise manner."
"I appreciated how the concepts were made simple without being dumbed down."
"Very easy to follow along, even for someone with no finance background."
"The language used was accessible and not overly technical."
Helpful worksheets and examples included.
"The worksheet for calculating ratios was incredibly useful and easy to use."
"I liked having practical examples of DSCR calculations explained."
"Using the provided workbook made analyzing my financials the way a lender would much clearer."
"The templates provided guidance on structuring my application."
Excellent introduction for novices.
"As a complete beginner to business loans, this course demystified the whole process for me."
"It broke down complex topics into easily digestible parts for someone with no prior knowledge."
"Perfect starting point if you know nothing about getting funding for your business."
"I was overwhelmed before, but this course made it feel achievable."
Explains how lenders evaluate loans.
"The course gave me an invaluable look into how lenders actually evaluate applications."
"Understanding the lender's perspective is key, and this course delivered on that."
"I finally understand *why* they ask for certain documents based on this course."
"Knowing what lenders look for made me much more confident."
May lack depth for experienced borrowers.
"If you already have some lending experience, you might find parts too introductory."
"I was hoping for more advanced negotiation strategies than were covered."
"Felt a bit basic after having applied for loans before, but good for refreshers."
"Could have gone deeper into specific industry considerations."

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in The Business Loan Formula with these activities:
Review Basic Accounting Principles
Strengthen your understanding of fundamental accounting principles to better grasp how lenders evaluate a business's financial health.
Browse courses on Accounting Principles
Show steps
  • Review key accounting terms and definitions.
  • Practice analyzing basic financial statements.
  • Work through sample accounting problems.
Read 'The Intelligent Investor'
Gain insights into financial analysis and risk assessment from a classic investment book to better understand lender perspectives.
View Melania on Amazon
Show steps
  • Read the book, focusing on financial statement analysis.
  • Take notes on key concepts and examples.
  • Reflect on how these concepts apply to business lending.
Calculate Debt Service Coverage Ratio (DSCR)
Practice calculating DSCR using different scenarios to become proficient in assessing a business's ability to repay its debts.
Show steps
  • Find sample financial statements online.
  • Calculate DSCR for each sample business.
  • Compare your results with provided solutions.
Four other activities
Expand to see all activities and additional details
Show all seven activities
Create a Loan Application Checklist
Synthesize the course material into a practical checklist to ensure you're prepared when applying for a business loan.
Show steps
  • Review the course content on loan application requirements.
  • Create a checklist of all necessary documents and information.
  • Organize the checklist for easy reference.
Read 'Financial Intelligence'
Improve your financial literacy to better understand the information lenders are looking for and why.
Show steps
  • Read the book, focusing on key financial ratios.
  • Take notes on how these ratios are used in lending decisions.
  • Reflect on how to improve your business's financial ratios.
Analyze a Public Company's Financials
Apply your knowledge by analyzing the financial statements of a public company and assessing its creditworthiness from a lender's perspective.
Show steps
  • Choose a public company in an industry you understand.
  • Download the company's financial statements (10-K report).
  • Calculate key financial ratios and assess its creditworthiness.
  • Write a brief report summarizing your findings.
Help Others with Loan Application Questions
Reinforce your understanding by answering questions from other students about the business loan application process.
Show steps
  • Monitor online forums for questions about business loans.
  • Provide clear and helpful answers based on your knowledge.
  • Share relevant resources and examples.

Career center

Learners who complete The Business Loan Formula will develop knowledge and skills that may be useful to these careers:
Commercial Loan Broker
A Commercial Loan Broker helps businesses find and secure financing options. This role involves assessing a business's financial needs, identifying suitable lenders, and negotiating loan terms. This course directly helps you understand the criteria lenders use to evaluate loan requests. Knowing how to calculate key ratios and negotiate terms is crucial for success as a Commercial Loan Broker. You will know how lenders view businesses and their loan requests, which is critical to the commercial loan broker role.
Loan Officer
A Loan Officer evaluates and authorizes approval of business loans. This career involves analyzing financial data, assessing risk, and ensuring compliance with lending regulations. This course will give you insight into what a loan officer examines, making you well-versed in loan structures, terms, and lender expectations. By understanding the lender's perspective, you can better communicate with them and potentially excel in this role. This insider knowledge can make you a more effective Loan Officer.
Entrepreneur
An Entrepreneur starts and manages their own business. Securing funding is often essential for launching or expanding a business. This course will provide you with a comprehensive understanding of the business lending process. You will learn how to prepare a compelling loan application, negotiate favorable terms, and manage debt effectively. This knowledge can significantly increase the likelihood of securing funding and achieving your entrepreneurial goals as an Entrepreneur.
Credit Analyst
A Credit Analyst assesses the creditworthiness of individuals or businesses applying for loans or credit. This involves analyzing financial statements, evaluating credit history, and determining the level of risk associated with extending credit. This course will give you a solid understanding of the factors that lenders consider when evaluating loan applications. The course syllabus, which teaches how to calculate cash flow, is essential knowledge for credit analysts. Understanding loan grading systems will make you a more capable Credit Analyst.
Real Estate Investor
A Real Estate Investor acquires properties for rental income or resale. Financing is often critical for real estate investments. This course provides insights into how lenders evaluate real estate loan applications. The course content dedicated to real estate investing loans will prove invaluable, teaching you how to assess properties for profitability. Understanding loan-to-value ratios and the factors that determine loan terms will make you a more successful Real Estate Investor.
Small Business Consultant
As a Small Business Consultant, you would advise small business owners on various aspects of their operations, including financial management and access to capital. This course will enable you to guide your clients through the loan application process more effectively. Understanding lender requirements and how to calculate key financial ratios is essential for helping small businesses secure funding. This course can help you provide more informed and valuable advice as a Small Business Consultant.
Business Development Manager
A Business Development Manager identifies and pursues new business opportunities to drive revenue growth. This often involves securing funding for expansion or specific projects. This course can help you understand the lending landscape and better prepare loan applications. By knowing what lenders look for, you can improve your chances of securing funding for your company. You will also have the ability to negotiate favorable terms, which is a critical skill for a Business Development Manager.
Finance Manager
A Finance Manager oversees the financial health of an organization. This includes managing budgets, analyzing financial performance, and securing funding. This course will equip you with the knowledge to effectively manage business loans and negotiate favorable terms. Understanding how lenders assess risk and structure loans is crucial for effective financial management. You'll also be well-prepared to present financial data to lenders as a Finance Manager.
Treasury Analyst
A Treasury Analyst is responsible for managing a company's cash flow and investments. They ensure that the company has sufficient funds to meet its obligations and that excess cash is invested wisely. The Business Loan Formula course gives you an understanding of how businesses obtain financing and manage their debt. The course teaches about loan terms, interest rates, and other factors that affect the cost of borrowing. These are useful, especially in negotiating loan terms with lenders, assisting in forecasting borrowing needs. As a Treasury Analyst you will better manage the company's cash position.
Financial Advisor
A Financial Advisor provides guidance to clients on a variety of financial matters, including investments, retirement planning, and debt management. Understanding how businesses secure loans and manage debt is a valuable asset for a Financial Advisor. This course will equip you with the knowledge to advise clients on the pros and cons of business loans. By understanding loan terms and rates, you can better assist your clients in making informed decisions as a Financial Advisor.
Accountant
An Accountant prepares and analyzes financial records to ensure accuracy and compliance with regulations. They may work for businesses of all sizes or for accounting firms. This course provides a solid understanding of the business lending process. You will gain insights into how lenders evaluate loan applications and calculate key financial ratios. Understanding business loans will enable you to provide more informed financial advice to your clients. You’ll also be able to better prepare financial statements that meet lender requirements as an Accountant.
Business Appraiser
The Business Appraiser estimates the value of businesses for various purposes, such as sales, mergers, acquisitions, and litigation. The Business Loan Formula course helps you understand how lenders evaluate businesses for loan purposes. You will learn also about the financial metrics and ratios that lenders consider. Business appraisers need to understand how lenders assess businesses to provide accurate and reliable valuations. This is particularly true when businesses rely on financing. Taking this course will make you a stronger Business Appraiser.
Underwriter
An Underwriter evaluates the risk of insuring individuals or assets. A background in finance and lending may be valuable in this role. This course may introduce you to the factors that lenders consider when assessing the risk associated with a loan. You may find that the skills gained in this course complement your knowledge of underwriting principles as an Underwriter.
Investment Banker
An Investment Banker advises companies on raising capital through the issuance of stocks and bonds. While this course focuses on business loans, understanding the broader lending landscape can be useful in this industry. This course may provide insights into how lenders evaluate a company's creditworthiness. Usefulness to you will depend on whether you focus on debt or equity issuances as an Investment Banker.
Commercial Real Estate Appraiser
A Commercial Real Estate Appraiser determines the value of commercial properties. Understanding how lenders evaluate commercial properties for loans is useful in this field. This course may familiarize you with the factors that lenders consider when assessing the risk associated with a commercial real estate loan. You will have a greater understanding of lender valuation methods as a Commercial Real Estate Appraiser.

Reading list

We've selected two books that we think will supplement your learning. Use these to develop background knowledge, enrich your coursework, and gain a deeper understanding of the topics covered in The Business Loan Formula.
Great resource for understanding the financial aspects of a business. It explains key financial concepts in an accessible way, making it easier to understand how lenders evaluate a business's financial health. It is particularly useful for those without a strong financial background. This book adds more breadth to the existing course.

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