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.
2. 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 approach.
3. Research your options.
There are 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
4. Support your loan application.
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
5. 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 projections.
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.
7. Keep educating yourself.
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
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