Where can I get a small business loan?
At some point, most small businesses will need to get a small business loan. This can derive from the need to get the operating capital for business startup or to finance an expansion. Regardless of the reason you seek a small business loan, the lender will have expectations of you. This is true whether you're approaching a bank or a friend. You can greatly increase your chances of successfully securing a small business loan by being prepared to meet those expectations.
The key to getting a small business loan is preparation. Prepare the documents that will help persuade the lender that a small business loan is necessary and that you are a good risk and prepare yourself to present it. The documents you will need to get together are:
- The business plan: shows the lender not only why you want a small business loan but what you plan to do with the money.
- Cash flow projections: the lender is going to want to know first and foremost if you will be able to repay the loan. Your business's cash flow projections give lenders concrete financial data that they can use to assess this risk.
- A statement of your personal financial status: this is a list of your personal assets and debts to give the lender a fuller financial picture of what your net worth is.
Some other documents that may be required by some lending institutions are:
- Previous years' tax returns: if your business is established and you have past business tax returns, take them with you. They'll give the lender a better idea of how your business is doing financially.
- Credit rating report: a credit rating report reflects your loan repayment history. Basically, you establish a credit rating by buying things on credit and paying back the money you owe. Your loan repayment history plays a big part in establishing your credit rating, but other credit dealings are also included to create an overall credit rating. It's not necessary that you include a credit report with your small business loan application because most potential lenders will probably check your credit rating themselves. However, if it has been a while since you've checked your credit rating, you may want to get one to see if there are any blemishes. If so, do what you can to improve your rating before applying for a loan.
The next step in getting a small business loan is to persuade the lender to give you a small business loan. You need to prepare in advance to make a winning small business loan presentation.
The lender's main concerns are: 1) what are you going to do with the money and 2) what kind of risk are you. To make a winning small business loan presentation, you need to come up with some good answers to these two questions.
To answer the first question, you will need to be really good at communicating the details of your business plan. You will also need to be able to point to the relevant financial statements, charts or graphs that will help convince the lender that you need the amount of money you're asking for in order to accomplish what it is you want to do.
To answer the second question, you will need to have already given some thought to the credit risk you represent to the lender and being ready to address his or her concerns. Some things you will want to be familiar with in order to discuss are:
- Your collateral: collateral is the tangible assets that you are willing to put up to secure the loan. These assets might be equipment, a house, a car or some other thing of value that you own. If you fail to repay the loan, then the proceeds from the sale of these assets is used for repayment.
- Your investment: how much money are you personally willing to put towards the business. If you are willing to risk your own money, this shows the lender that you're committed.
- Your expertise and/or experience: the success of your business is somewhat dependant on your expertise in the field. Any potential lender will want to know about you, so be prepared to talk about yourself when you apply for a small business loan. They may ask questions about your background, your expertise, and even your aspirations.
Your chances of getting a small business loan will be greatly improved if you have all your documents in order and are prepared to address the lender's concerns about loaning you money.
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