Whether you’re a new start-up or an established business, finding a small business loan to fund your business can seem daunting. Many financial institutions offer business loans, but in today’s economic climate, lenders have tightened lending requirements and not everyone qualifies for a loan. It helps to know beforehand what lenders look for when considering a loan so that you can take the necessary steps to increase your chances of qualifying.
Have a Plan. Both new and established businesses should have a solid business plan. Many lenders want to see a business plan which states the goals of your business and how you plan to achieve them. You must demonstrate you have the necessary expertise to run and grow your business. The plan should include a description of the business, the marketing strategy, finances — both current and projected, and details on management. Due to the potential influence of your plan, you may want to hire a professional business plan writer to assist you.
Have Good Credit. You must be able to demonstrate your company’s ability and willingness to repay a loan. If you are an established business, be prepared to present copies of your business tax returns for the past two years. If just starting out, you will need your personal income documents such as tax returns, bank statements or W-2s. Lenders will also like to see that you and your business have paid past bills and loans as agreed and on time. Before applying for a loan check your history with the credit reporting bureaus and work to correct any problems. Ideally, your FICO (http://www.myfico.com/) score should be close to, or above, 700.
Have Collateral. Secured business loans are easier to obtain because your collateral secures the loan. You will need to prepare an asset list to prove to financial institutions that you’ve got enough equity. Lenders look for assets that have resell values that meet or exceed the amount of the loan. Positive cash flow, purchase orders and signed contracts for upcoming jobs are additional considerations. Lenders may also turn to personal guarantees. If you have personally invested in your venture this shows the lender that you are willing to risk your own personal assets to grow your business.
Have Character. Remember that character, trustworthiness and personal history are important. When lenders look at applicants for a small business loan, they may find themselves on the fence. Your personal history and proven integrity might just tip the scales in your favor. If your credit or your business’s credit has a blemish, explain the situation up front. Being honest with your lender will go a long way in building trust and credibility. Always remember, you may be turned down by one or more lenders before finally getting approved. Don’t ever take rejection personally. Learn from the experience and take the necessary measures to improve your likelihood for success the next time.
The Small Business Administration. Research the Small Business Administration (http://www.sba.gov/), a government organization that offers guidance and assistance to small business owners. The SBA offers a loan guarantee program that guarantees business loans provided by participating financial institutions. This program is designed to help small businesses, which would otherwise not qualify for traditional business loans, gain financing. SBA-backed loans provide more flexible terms such as extended repayment periods and low, fixed interest rates.
If your are looking for a small business loan, but unsure of where to start, we suggest talking to someone who can guide you. Our Branch Managers and Business Lenders are an excellent resource, and can suggest the solution that best fits your business needs.