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Successfully Obtaining a Small business Loan

Written by: Rebecca Game

Working with a bank to obtain a small business loan can be an
easy or difficult process, depending on how prepared you are to
meet with the lender and discuss your business’ situation and
needs.

One of the leading causes of business failure is insufficient
start-up capital. Ironically, though, lenders rarely approve
loan requests for the businesses that have the highest need for
a small business loan. Instead, lenders tend to prefer to offer
small business loans to those businesses that have been in
operation for two or more years.

According to All business, it is estimated that 95 percent of
all entrepreneurs opened their businesses with capital from
their own pockets, or from money they borrowed from relatives,
friends, or another person in their community. Lenders want to
see business owners risk their own funds in the business
venture, and often require that the business owner or owners
provide a minimum of 25 percent of the capital needed to start a
business, and at least that much equity in the business if the
business is already in existence. Simply stated, lenders aren’t
as willing to take a risk when a business owner doesn’t even
risk their own money in the investment. businesses with a
history demonstrating success in paying their bills for two and
a half to three years will have the easiest time obtaining a
small business loan because they’ve proven their ability to meet
financial obligations.

Preparing a Small business Loan Proposal

When preparing to apply for a small business loan, be prepared
to face the facts that are against you, and use them in your
favor. Persistency is necessary if you want to land a small
business loan. Lenders follow certain criteria to determine if
the small business loan is a wise investment for the bank. Most
importantly, the bank will determine if the small business loan
is likely to be repaid. As with other businesses, banks and
other lenders must answer to their investors and stockholders,
and unpaid loans show instability in the bank or financial
institution.

Items compiled into a small business loan request include the
following: - Amount of money requested - Likeliness of business
profitability and demonstration of cash flow needed to service a
small business loan - Collateral, if any is owned by the
business - A reasonable balance between debt and equity

Know Your Banker

Whether you have a start-up small business or an established
small business, the first step in obtaining financing through a
small business loan is to develop a business relationship with
your banker. Consider asking your bank’s manager to open a file
for your business, and provide quarterly or yearly profit and
loss statements. When your business is in need of financing, the
bank will already have a file and will be at least somewhat
familiar with your operations. When the time comes to apply for
a small business loan, approach the banker with a solid business
plan to inspire the lender’s confidence in your business.
Provide information on business operations, marketing efforts,
management ability, and financial projections for three years,
as well as a cash flow projection and personal balance sheet
demonstrating the worthiness of the business.

To prove worthiness for a small business loan, prepare proper
documentation. Keep your credit reports as clean as possible. A
lender will assume that you operate your business in the same
manner that you manage your personal finances. The lower your
credit rating, the slimmer your chances are of obtaining a small
business loan.

When applying for a small business loan, search for a lender by
first approaching the bank or banks in which you currently do
business. Since you’ll need to share all of your personal and
business financial information, it can be beneficial to apply
with a financial institution that already has that information
on file and is perhaps familiar with your profile and spending
habits. If your credit rating is high, your changes are good of
being approved for the small business loan.

If you are unable to work with a bank or credit union in which
you currently do business, or if you’d prefer not to work with
your bank or credit union for your small business loan, look for
a lender who wants your business. Search the business section of
your local newspapers for special financing offers on small
business loans and other loans. These lenders are actively
looking for people needing small business loans, and the process
of obtaining a small business loan with these types of lenders
may be easier and faster. Additionally, check into credit
unions. Because credit unions tend to be smaller financial
institutions, you may be able to speak directly with a loan
decision maker. Larger banks and other types of large lenders
may have more rigid rules for small business loans, and the
processes that they employ may be more complicated for small
business loans.

If, at First, You Don’t Succeed

If your first attempt at obtaining a small business loan fails,
don’t be discouraged. Small business loans are often not
approved with the first lender that you approach, and be assured
that you’re not alone. Especially if you have a start-up
business, lenders don’t always approve small business loans,
even in the most ideal situations. Search for other lenders, or
become resourceful and look into other sources for loans rather
than a small business loan, including home equity loans and
Personal Loans, both of which can be used for business purposes.

About the author:

Rebecca Game is the founder of Digital Women ®, an online
community for women in business. A 30 year entrepreneur and
dedicated to helping other women find small business loans.
Visit her site: Loans”>www.digital-women.com”
target=”_blank”>Loans for Women

http://www.digital-women.com