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 loans.
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 eliminated.
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 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
business case.
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