Securing a Small Business Loan can be a daunting task, with plenty of hoops in which to jump through before landing the right deal. Equity and income are important factors when finding good lenders at reasonable interest rates; knowing a few indispensable tips first can also be the difference between a successful business loan, and a financial failure.
Here are three essential tips on successfully securing a Small Business Loan:
1. Get your finances in order:
One of the number one things that need to be done when trying to procure a small business loan is to get all of your business and private finances in order first before applying. The main objective is, of course, for your loan to be accepted as quickly as possible. Having the proper statistics in which to back up your business claims to potential lenders, will be the first step in helping to expedite the lending process for your small business.
Keep essential proof & paperwork on hand.
Have your personal and legal information ready to be utilized. Do not be daunted by having to provide stacks of invasive personal and business information, this is a normal part of the loan process that commonly includes credit, background, and even criminal checks. Your educational background may be scrutinized as well as banks determine and assess your abilities and qualifications to run a business.
Past tax returns, legal arrangements, and business licenses are all routinely gone over meticulously by the lending establishment. Being prepared for all of the paperwork and financial scrutiny that comes along with the territory will help relieve the stress of going through the small business loan process. Researching the data, forms, legal representation required, and lending options available are all essential tools that are needed in order to find not only the best deal, but also the best financial fit for your business needs.
Have a professional business plan.
Preparing a solid business plan that is thorough, but still simple enough to easily convey to a potential lender is imperative. Building up the proper data specifics and presenting them to lenders in a way that will easily stand up to reasonable fact checking, helps the loan sell itself for the borrower. Having a comprehensive, complete, and concise business plan is what ensures the lender that your loan is a low risk one.
In-depth business plans should include these facts: Exactly how much of a loan your business is going to need in order to ensure success – Where and how each and every dollar of your loan is to be allotted – A thorough and reasonable repayment plan is also needed in your proposal. – Also include relevant projections, emergency fund placements, and cost saving measures for expected downtrends in the market.
2. Use credit & collateral wisely:
Cash is King, but good credit also gets treated like royalty.
Make sure of where your credit score stands before applying. Getting a recent report done saves you embarrassment later when unforeseen circumstances might cause inconvenient drops in your credit rating. A businesses’ credit report is one of the main mitigating factors in getting a small business loan approved.
It is advised that you have your credit score checked through all three of the top main consumer credit rating agencies in order to compare them and secure a truly accurate score. Be prepared to also provide recent and past bank statements as well, strong financial showings in the positive, helps to avoid a lender requesting large amounts of collateral for a loan.
Choose the right collateral for you.
As defined by the Small Business Administration, Collateral is considered: “An additional form of security which can be used to assure a lender that you have a second source of loan repayment.” IE: Usually real estate property.
A business’s inventory, deposits, equipment, and cash savings can all be considered as appropriate collateral for a loan. This is why choosing the right collateral to put up for a loan, let alone how much to put up, can be a very important sobering choice that can affect one’s future for better or worse.
Property as collateral on small business loans are a standard stipulation for a financial institution when they consider a loan; especially for equipment loans, or inventory loans for retail outlets. A bank will look at your company’s business history, revenues, balance sheet, business credit, and equity contributions, all in order to decide how much collateral will be needed in order to secure a loan through that institution.
Defaulting on a business loan is serious business. Most forms of real estate collateral end up being the family residence for loans over $250,000. A default on a business loan can cause irreparable personal devastation at home; always consider the risks and “Worst Case” scenarios when contemplating your collateral options with a lender.
3. Choose the right lending institution:
In this recovering, but still leery and unsure business economy, a Small Business Owners best chance of landing a loan from a lending institution is to search for a bank that knows their industry, demographics, and is also familiar with their business target market, ensuring that both they and their lender are on the same page from the very start. A local area Chamber of Commerce Small Business Development Center can help accomplish this.
Try Local Lenders.
Banks are very specialized. There are loans created especially for startups and small business owners looking to expand. Community banks are available that cater more to the community small business owner rather than large corporations. These local lending institutions are going to be the ones that are most likely willing to look at a small business loan application on a case-by-case more personal basis.
Most “Big” banking establishments form their loaning criteria on strict formulations based solely on available business capital and strong financial resources, this makes them tend to overlook the little guy with the great plan.
Don’t give up.
Remember that if your loan application is initially denied, you can strengthen up your business plan and go over your finances again in order to streamline them for the next lending establishment loan application. A rejection from one lender does not necessarily mean a second no is imminent from the next application to a lending facility; there are many different lenders out there who are going to be willing to take a chance on the right business plan.
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