7 Tips for a successful business loan
|The economy is starting to heal and small business
owners are readying to get back into business. This includes
borrowing money so they can successfully start, buy or grow their
business. This article offers 7 tips to use when making your
application for your next business loan and get a “yes” rather than
a “no.” |
Money tends to rate high up on the list of needs for
people planning on starting or moving into business ownership.
Here’s 7 tips if you need start up financing for your business.
1. Clearly identify how much you have available.
The best place to start is yourself. If you have some
capital available to invest in a business this is a great start as
other parties you approach will take you more seriously. They will
take you more seriously as they want to see that you have “skin in
the game.” Once your position is clear, family and friends are the
next to approach. If you say they have money make sure it truly is
available. There is nothing more frustrating than approaching
professional lenders with your well thought out business plan
showing a clear financial plan that includes a partial capital
injection from family and or friends. The lender then approves their
loan subject to the other parties contributing but then everyone
finds out the family and or friends have changed their mind and al
the planning by all parties has been a waste of time.
Identify what you need.
How much capital do you need and
why? Is it to buy equipment, buy inventory, pay a franchise fee,
downpayment on a business or cash to fund the business operation?
There are different types of lenders for different types of loans.
Get the “why” worked out quickly so you can find the right lender to
3. Research your options.
different lenders that focus in different areas of the market. The
obvious place to start is your local bank or credit union. Hopefully
you have a good enough relationship to speak to the business
development officer at your branch or be referred to this person. If
this position doesn’t exist, ask to speak with the manager. If your
bank can’t help, ask for a referral to a lender that can but make
sure it’s clear why you need the loan so you are introduced to the
right lender. If you’re still looking for options, the Small
Business Administration (SBA) has a wealth of knowledge. Search
online at www.sba.gov. If you still need options, search the
internet but focus on keywords that are specific to the loan you
need. For example, if you need a loan for cash flow and have
accounts receivable to use as collateral, use “accounts receivable
loan” as your key words and you will come across lenders that
provide factoring. Once you find some companies that can help, make
sure you are comfortable working with them and research the full
costs and terms of the loans.
4. Support your loan
Wanting the money for your business won’t
be enough. Proving you need the money won’t be enough. A quality
lender will want to see a business plan explaining how the loan will
be used, a resume detailing ownership experience (and therefore the
ability to repay the loan), education, credit history and most
important of all in today’s economy, the appropriate management
experience to run the business and therefore repay the loan. If you
need help on how to write your business plan, look for the article
I’ve written called “10 tips for your next business plan.”
Supporting your loan application also includes looking at
your credit score and credit history. These two points are
important. If your credit score is in poor shape and you can clearly
explain why and the lender is comfortable with the explanation, they
may approve your loan. For example, if you had an auto accident a
few years ago that resulted in medical bills that are now under
control, your poor credit score is explainable. Similarly, before
applying for a loan get a copy of your credit report. Often there
are mistakes on your credit report. Get these removed before
applying for a loan so this problem is eliminated.
Build cash flow projections.
Lenders eat and sleep cash
flow projections. This is what they do for a living. The stronger
your cash flow projection the greater your chances of success in
getting the loan approved. If this is not your strength, get help
from your accountant or someone who knows and understands cash flow
6. Sell your need.
Once you have
the data built and ready to launch your loan application, practice
your sales pitch. Don’t over embellish but be confident, know the
ins and outs of why you need the loan and practice your response so
you come off confident. The lenders aren’t looking for a sales pitch
but they are looking to see that you believe and that if they need
to escalate your loan request to higher management, you will present
strongly and not have their judgment questioned.
As you work through each step of
this process, ask questions. It’s amazing how options appear from
places you least expect because you talk to a friend who knows
someone at Rotary who specializes in these sorts of loans.
Alternatively, they may not be able to help you with that loan but
they can help strengthen you and your application so it gets
approved…which is what this all about in the first place.
Obtaining a loan or finance for a business has been very
difficult. Because the economy is stabilizing and government
programs are beginning to have a positive effect, loans are
available as long as you the borrower, present a professional