Learn how to secure small business loans without stress.
Securing small business loans is not as difficult as the way people think. You only need to understand what the banks want before they grant small business loans. If you master and meet the banks requirements, it will be easy for you to get loans for your small business. There is no gainsaying about the roles finance plays in small business. If you ask any small business owner what his challenges are, he will likely mention finance among others. Of course, there are different ways a small business can finance its operations. This includes personal savings, borrowing from friends and relations, bringing in new partner who has funds to contribute etc. It is possible that you have explored these options and you can’t raise sufficient fund for your small business. How to get small business loans may likely be your next thinking. In most cases, small businesses find it difficult to get their small business loans application approved. Some have applied for small business loans several times from different banks with no positive result. Some have given up and believed that they can’t secure loans for their business.
To secure small business loans, you need to do the following:
If you want to secure a small business loans or a line of credit, you need to write a former letter to the bank asking them to grant your small business a loan for a specific purpose. This is the fundamental mistake some small business owner make. When you are not specific about what you want the small business loans for, the bank may turn down your application. Also, stating the objective for applying for the small business loans is not enough. The objective should be reasonable. For example, if you apply for small business loans for the acquisition of equipment for your small business, this type of application for loans can easily be considered. But if you want to use the small business loan for the payment of salaries, that application may be turned down. You still need to be specific about the amount. You might even attach the quotation for the equipment you want to buy. This will convince the bank the more about the reason you are applying for the small business loans. Don,t forget that your application should be on the letter head paper of your small business.
Banks expect to see a well written business plan of your small business. They like to see the projections for income and expenses of your business. Many small business owners usually like to present a business plan that shows high profits to the banks. This does not guaranty that your business plan will be given a pass mark. If the figures in the business plan do not correspond with your action plan, no bank will be willing to grant small business loans for that reason. But if you make provision for the cost of the equipment, the repayment of the loan and interest charges among others, such application for small business loans can receive a consideration.
Build a relationship with your bank before the application for the small business loans is submitted. Banks are more comfortable to grant small business loans to people they know or familiar with. If you are coming to a bank for the first time and what you are asking for is loan for your small business, they may not like that type of relationship. They can mistakenly take you as ‘hit and run’ type.
Operate your small business for some time
Getting small business loans for a new business may be more difficult than getting a loan for an existing small business. Try to operate your business with the little funds you have. You can later apply for small business loans for the expansion of the business.
Maintain a good accounting system
A small business with good accounting system can easily earn the confidence of the banks or other money lenders. As part of the required documentation when you apply small business loans, you are expected to provide the management report of the business covering the past six months. If you don’t have a good accounting system, preparation of management report will be difficult.
Demonstrate ability to pay back
When you apply for small business loans, you should be able to demonstrate your ability to repay the loans. This should be backed up with good cash flow projections. The cash flow projection is expected to have positive balance. Ability to pay is one of the criteria banks for granting small business loans.
Good credit history
Your credit worthiness will increase your chance of getting small business loans. If you apply for small business loans for a business with a bad credit history, no bank will be willing to grant you any loan. If your credit is bad, it is better you increase your credit score
It will be good if you can provide collateral as a security for the repayment of the loan. The value of such collateral should be able to pay off the loan in case of default.
Get a guarantor
This is very important especially if your small business is very new. You can leverage on the image and goodwill of people who are credit worthy by making them as your guarantors.
Knowledge of the business
This is very important. One of the reasons for the failure of small businesses is lack of relevant knowledge and skills on the part of the owner. If the banks suspect you don’t have enough knowledge in the line of business you want to do, they will not grant you the small business loans. You need to develop the skills needed to succeed in your line of business.