What you need to know about getting a small business loan
At some point most small businesses, need a loan. This could be to get the operating capital for business startup, or to finance an expansion. It is important to keep in mind that whether you're approaching a bank, or a friend for a small business loan, the lender will have the same expectations. You will need to be able to satisfy these expectations, if you are looking to get that loan. In preparing for your business presentation, it can be helpful to put yourself on the other side of the desk for a moment. Remember that if you were being asked for a loan, you would want to know exactly why he or she, wanted the money, and what the chances were that he or she, would repay the loan in full and on time. Make your preparation from that point of view. The first step is to gather together the documents that will help persuade the lender that a small business loan is necessary and that you are a good risk. You will need the following documents:
- Your business plan-Having a business plan will show your lender, not only why you want a small business loan but what you plan to do with the money.Make sure that yours is well-thought and well-written.
- Your cash flow projections-The first priority your lender will focus on is your ability to repay the loan. Your business's cash flow projections should give a lender concrete financial data that they can use to assess this risk. This can be a part of your business plan, or a separate document.
- A statement of your personal financial status-Your lender will want to know what risk you are willing to assume in the repayment of this loan. In addition, your lender may judge your ability to handle money, as a reflection of what you will do this with this loan.A list of your personal assets and debts may be required to give the lender a fuller financial picture.
- The following documents may or may not, be required-
- Past business tax returns-If your business is established and you have past business tax returns, it can be a good idea to take them with you. This will give the lender a better idea of how your business is doing financially.
- A credit rating report-Your credit rating report will most likely be "pulled" to give the lender an idea of how you handle money. Keep in mind that while your loan repayment history, plays a big part in establishing your credit rating, all your "credit" dealings make up the history that's used to determine your credit rating. It's usually not necessary that you include a credit report with your small business loan application; since most potential lenders check your credit rating. But if you don't know what your credit rating is or suspect your credit rating is tarnished, you may want to get one, before applying for a small business loan.
- Now that you have all the documents you need to get a small business loan in order, you will need to work on a presentation that will persuade the lender to give you a small business loan. To get a small business loan, you should be prepared to tell your potential lender:
- What collateral you can offer-Collateral refers to the tangible assets that you are willing to put up to secure the loan. These assets might be equipment, a house, cars, anything of value that you own. Keep in mind though, that if you fail to repay the loan, then the proceeds from the sale of the assets is used for repayment.
- How much money you're personally willing to put into the business-You should understand that being willing to risk your own money shows the lender that you're committed to the business.
- Your expertise and/or experience in your chosen field-You should be prepared to talk about yourself when you apply for a small business loan, including: your background, your expertise, and even your goals.