Wednesday, January 1, 2014
Getting A Small Business Loan Is Not Easy
Today's lending climate is harsh. Getting loans is however especially difficult for a small business.
Whether you are starting a business, or want to expand the existing one, securing financing is a major factor for the business to survive.
If you're a budding entrepreneur, you will need a loan to secure operating capital for your business start-up. Banks are skeptical about lending money to start-ups, so you better prepare in advance for a tough negotiation! They are not interested in what you think a potential of your idea is - they will want to be ensured that your business will be able to pay off a loan.
When the time comes for your business to make capital investments, increase your workforce, or move to a larger space, getting a loan is almost always a must. For larger investments, a term loan may well be a better choice.
Different banks have different standards when it comes to lending money to businesses.
They sometimes require that a business is of a certain size.
But in general, to even consider your application, they require that a loan be for a solid business purpose. That means that gambling, speculating, passive investment, pyramid sales are out of question. The bank will want to know what you need the money for, and will you be able to repay - fully and on time.
That's why you'll have to prepare some documents that will show why a business loan is necessary, and that you're a good risk. Usually, the documents you will be asked for are a solid and detailed business plan, cash flow projections for at least a year, personal and business credit history, personal guarantees from all owners of the business etc.
Sometimes you'll be asked to provide past business tax returns to show how is your business doing financially, and a credit ranking report.
They will asses your ability to pay back money. Having business and personal assets is of utmost importance. You'll have to be prepared to tell the lender what you are willing to put up to secure the loan: a car, a house, or something other of value. If you'd fail to pay, those assets will be sold for the purpose of repaying the loan.
Tell them how much money you are personally willing to put into your business. This will show the lender your commitment.
Show them a proof of your professional expertise, a degree if related to the enterprise, talk about your background. Do your best to persuade a lender that his money is going into right hands!