SMALL BUSINESS LOANS
Money is the key factor for any successful business entity, it may be that you are starting a new business or you are running an existing business, then securing your financing for this business will be a major factor to be looked into. Securing a loan for your small business boosts the operations of the business making it firm and expanding gradually. As a young entrepreneur the following questions will guide you in securing the loan for your small business.
What techniques do banks put in place when making small business loans?
Different banks may have different lending standards, but in order for banks to consider your small business loan application they must consider to find out on various things about you. The bank or any lending institution will want to know the nature and size of your business so that they can be assured that the loan they will lend to you will be for a sound business purpose. The bank will also judge you depending on your personal and business credit history. If your small business has got a successful history, then you have got a higher chance of getting the loan. The bank shall ensure that you are the right candidate for the personal loan by confirming all this and get satisfied. If you have not built your credit history with the bank, it is important to start now so that you can give the bank an idea of how you are financially responsible. Make sure that you know what the bank see when they pull your credit for the small business loan. It is therefore important to build your business and personal credit to keep both things safe. The business loans from the bank come in different flavors from the variety of sources. You have got the desire, ideas and the plan and all you need is some extra money from the bank to boost or start your business.
What you need now is to prepare well with your personal credit history which is relevant to your small business. This is because the bank will automatically assume that you will operate the business in the same way as you manage your personal finances. So it is important to go with the credit history to the bank for reference purposes. You will also bring the financial statements for the business for the company to assess the financial health of your business. The bank will want to know how much the business is worth and how much money you can control. You can also prepare some detailed business pro-forma statements that gives the future projections of the business. Make sure that you have a well updated business plan because banks award loans to small business that have all the things spelled out and well planned. Ensure that you prepare your plan with as more detail as possible. Include your bios, your track record, your partners, your advantages and your strategies. After you have prepared all your documents, its then the time to go in and ask for the loan. The question you should ask yourself is which bank or lending institution shall I go to? You can start with all those institution that you already know and done business with. These places will be more likely to lend you the money because they know your history and your financial behavior. They will also lend because of good financial responsibility. The big issue with the bank’s risk is uncertainty as they are not sure of loan repayment. But if they reduce uncertainty about you, then you are in a good position. In case you have a mortgage with the bank, then this will be a better place where you can start asking about your small business loans. The bank will determine your ability to pay back in terms of your personal and business assets. You should also ensure that you and your partner or partners have got good character, good personnel, credit history and enough experience.
How can you increase the chances of getting a small business loan from the bank?
The following are some of the tips that will increase your chances of securing a loan from a bank for your small business.
1. Try to know several bankers at your financial institution in your local community.
Find out the financial institutions that are available at your local market. Identify those ones that make loans to people. Some financial institutions specialize in lending business loans to small business while others specialize in lending their loans to firms in certain industries and others lend to those in a certain stage in business life cycle. Work out with those bankers who understand the current industry that you are in and determine out the effects of the current financial crisis to the availability of credit in your community. Relating with the banker is essential because this banker will educate you with some financial advice that you may not know. They can because they work with these firms with the same problem that you are in. the bankers are in a better position to provide you with financial products that you may need to solve your problem. Seek those bankers that can help you to deal with your current financial crisis.
2. Articulate the value proposition of your firm to its target market and also to reach your business plan.
If you cannot articulate clearly why some companies or customers should do any business with you and how you will compete effectively in the chosen target, then the chances of getting a loan is very slim. Make sure that you develop a business plan that has got three different scenarios: that is the best case, most likely case and the worst case. This is because you need the banker to understand all your scenarios since you are asking for the support through good times and bad times. You should prepare to discuss in detail all the assumptions which underlie every scenario.
3. Think like a banker
Understand the risks involved to operate in your industry. Ensure that you have a plan that will help you to mitigate all these risks and share your plan with the banker. Bankers do risk analysis, so this will be of good important to the banker. Provide the perspective that the banker has not considered. It will be necessary for the banker to understand that you are operating in an industry that you know its risks and that you have a good plan on how to deal with them.
4. Develop ways to repay the loan
Bankers look for secondary and primary loan repayment sources. You too you should develop at least two ways to repay your small business loan for the sake of the business. This is because you are in the best position to come up with repayment alternatives. Discuss these alternatives with the banker before the loan is approved. The secondary repayment sources may include the pledge of personal or business collateral and the addition of loan guarantee by the owners of the firm, customers or suppliers.
If the certainty of the bank on your payment agreement is high, then the more likely it will be that you will not receive the loan decision only, but also the interest rate.
5. Never ask for loans that may be funded with the injections of equity
Bankers are not paid to take the risk of equity, but they are paid to make some loans which can be repaid at the right time. The amount of equity that you may need to keep the operations of your small business growing depends on several factors which may include; your industry and the role your small business plays in the industry. Equity required by the manufacturer is different from the amount of equity that is required to run the wholesale distribution business and retailers in the industry will also have a different equity. Amount of equity required is also influenced by the stability of the industry. Businesses situated in stable industries require less amount of equity as compared to those businesses in rapid change.
Where can you go when the bank says no?
The following are some of the way you can get a loan for your small business if the bank refuses to approve your loan.
Selling your products
It may be an overlooked way of raising money for your small business but it may be an effective way to help you secure some cash for your small business. Identify different ways that you can use to sell your product and bring in some cash to support your small business. It may be a challenge but nothing is hard if well planned and organized.
Friends and family
Another way of raising money to fund your business is by borrowing from your friends or family members. This may be a traditional form of funding but it works best. In case you are starting a business, you may be forced to go and ask some assistance from your family or your friends to finance your business. This is because most banks don’t like giving loans to those small businesses that are in their earlier stages. It is advantageous because friends will not charge you as banks will charge. It is good to try this first if you see any chance of getting enough money.
Having another business
New business owners may look dip into the business they have in operation to fund their start up business. You can use the revenues that you get to fund a new business. it is also good for those entrepreneurs with many business to allow their business to grow, expand and open other businesses.
Home equity loan
A home equity loan is the amount that the person seeking the business loan has in his or her own home. This will be a great business financing option because their interest rates are flexible and lower. They are very cheap and easy to rise. This is a form of borrowing that is very low in terms of cost. They are controllable by the business owner as far as when he makes payments and withdrawals.
You can sell your assets to generate money for your small business. It may be a tough decision but you will be able to make a substantial amount that will cut down your financial problems. Sell your assets to get some cash that will help you to support you small business.
If you are looking for some small additional funds to support your small business, then credit cards will be appropriate. Business credit cards are among quick and readily available means to finance your small business. Their main advantage is that their minimum payment is low on the credit card. And its disadvantage is that it doesn’t go quickly.
How you can set yourself to make the process easier
· Ensure you pick the lending institution carefully. Larger banks have tendencies of ignoring small loans as they will be less profitable to them. It does not mean that larger firms don’t offer small loans, but they make it difficult to get a small loan from them.
· Approach all those banks and lending organizations you have worked for or you are their regular customer.
· Explore community banks available
· Talk to a lending officer to find out all the required documents
· Bring everything they want including your personal and business credit history, personal and financial statements of the business if there is, financial statements of your business projections, a detailed business plan, cash flow projections and personal guaranties.
The Advantages of taking small business loans are;
Convenient and easily accessible: banks are easily accessible because they are being used regularly deposits and withdrawals. Banks will be convenient and familiar with regular customers.
There are many choices of loan
It is a non profit sharing
There are lower rates of interest
There are tax benefits in bank loans
The disadvantages of taking a loan for small business
Lengthy process of application
It is cumbersome
The entire amount is not granted
You may loose collateral
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