The quest for business capital is often a stressful and frustrating process. Banks consider small business lending to be high risk and low return, and as such, many business owners are quickly refused with little or no explanation.
So what’s a small business owner with capital needs to do?
Step 1: Get Your Books in Order
When applying for a business loan, you will need to clearly articulate:
- The amount of capital needed
- How the cash will be used
- A plan for repayment
Accurate documentation of your income and spending habits will reveal cash flow problem areas and opportunities for improvement. A careful evaluation of your financial statements may even eliminate your need for a business loan entirely. If you only need a small amount of capital, there may be easier ways to get it (i.e. liquidating an asset, incentivizing collections with a discount, etc.).
Your records will play an important part in the loan qualification process. If the financial records still indicate a need for cash, the time spent organizing your books certainly won’t be a waste.
Step 2: Research Your Options
Financial institutions are in the business of “calculated risk.” When you apply for a business loan, that institution is deciding whether or not you are a good investment, but different lenders have different ideas as to what a good investment is.
Generally speaking, large banks are not as interested in granting small loans as they are with making larger loans. This does not mean they will not, it just means it may be a little more difficult.
What is most important is to pick your lender carefully. You may want to consider working with a community bank or credit union. You should also talk to banks and other financial institutions you already have a relationship. By all means, do your own research to find the best fit for your lending needs.
Step 3: Prepare Your Repayment Plan
Lenders sure do ask for a lot of stuff, don’t they? Application requirements vary from lender to lender and help a lending institution to evaluate your ability to repay the loan. Have you identified key financial metrics? These will indicate the health of your business from the lender's perspective and predict the likelihood that your loan will be approved.
For an example of what it may take to get a business loan, visit the US Small Business Administration website, www.sba.gov. Be sure to check with your lending institution regarding additional requirements.
Are your books in order? Is a business loan in your future? Schedule a complimentary call to learn more - 843.225.6522.