Preparation: The Key to Small Business Loans
In order to prove that you’re worth the money, you’ll want to prepare some documentation. First, your personal credit history is relevant to your small business loan – especially if your business does not have a long operating history. They will assume that you operate your business in the same manner that you manage your personal finances. Bring your credit history with you to reference as necessary.
Next, bring financial statements for your business. You’ll need to show your business’s financial health. They want to know how much it’s worth and how much money you’re moving. If you’re serious about small business loans, then you’ll also want to prepare detailed pro-forma statements. These give projections about what your business will be worth going forward.
Finally, be sure you have an updated business plan. By preparing a detailed business plan, you’ll already have your financial statements and pro-formas prepared. Banks award small business loans to those that have everything spelled out and planned. I strongly suggest that you prepare a plan with as much detail as possible – including bios of you and your partners, your track record, your strategies and advantages, and more.
Choosing Banks for Small Business Loans
After you’ve prepared your documentation, it’s time to walk in and ask for the money. Where should you go for your small business loan? Since you’ll have to share ALL of your personal and business financial information anyway, do it with somebody who already has that information.
Start with institutions that you already do business with. These places know your history and financial behavior, and they’re more likely to give small business loans to those who’ve demonstrated financial responsibility. Remember, a big part of the bank’s risk is uncertainty regarding loan repayment. If they can reduce uncertainty about you, you’re in a better position. If you have your mortgage with a bank, that’s a good place to start asking about small business loans.
If you can’t or won’t use your existing relationships, go to somebody who wants the business. Search the business section of your newspaper for financing offers. These banks are actively looking for small business loans and the process may be easier with them.
Another choice is to ask around at credit unions. Because these institutions are smaller, you may be able to talk directly with higher-level decision makers to plead your case. Larger banks have more rigid rules and processes associated with small business loans. Even if the person you’re talking to believes in you, he or she may not be able to help.
The most powerful way to qualify is to build business credit. It takes time, so you should get started as soon as you can.
What to do if You Can't Get Small Business Loans
If you're having a hard time getting approval for a small business loan, you may have to try some alternative sources. Don't worry, this is often the case for smaller and newer businesses.
You may have to look at alternative sources of funding such as P2P or start up lenders:pledging collateral, or offering a personal guarantee.