Although credit is tight right now for small business owners, business loans are still available. Banks, CDFI’s and alternative lenders will do business with you if you have the price of admission:
1) Good credit 700 or higher FICO score
2) Collateral to guarantee the loan
3) A Solid Business Model
4) A Plan to Repay the Money
Borrowing loan money from a bank is not a quick or easy process. Following these tips will increase your success with securing a bank loan.
Make Sure You Are Using The Right Bank
It is best to borrow money when you do not need it. If you are currently doing business with a large commercial bank your success with getting a loan or much ongoing support once you get that loan is limited. Identify a local community bank in your area and open an account with them. Spend time building a banking relationship with the business banking specialist and the manager of the branch at least six months before you are ready to apply for a loan. You can get the money you’re looking if you have the right relationships. In community banks lending decisions are made locally. It all comes down to who the bank managers know and trust.
Study Your Industry Trends
You must have a strong business model, and be able to quote your industry trends in a way that convinces your banker that your business will be a success. You must convince them to take a chance on you. You need to connect with your banker on an emotional level to make them become invested in your success. At the end of the day, you are selling yourself as much as you are selling your business. Showing your enthusiasm and determination are also key elements to making a great impression about your business
The Ask Letter
This 1-page cover letter details your loan request, your ability to repay and your unique selling position, what I like to call your secret sauce. This is your first opportunity to make an impression, so be confident but be careful not to oversell your business. Make sure your sales projections are reasonable and conservative. Hype masters scare bankers. The number #1 goal of this cover letter is to explain why your loan should be considered.
Have an Up-to-Date Business Plan
A 10-25 page business plan is plenty. Key components should include a concise executive summary, strong marketing plan and conservative financial projections that include historical financial trends. Be sure to include your industry background, your competition, your competitive advantage, and an existing client list is also great to show how well your business is doing to date. Testimonial letters from happy customers is always great to validate your business.
Submit Financial Documents
You should be in business at least two years before applying for a business loan. You will be required to submit the past two years’ tax returns for your business and yourself personally. Your spouse will also need to provide personal financial records if he/she is a co-owner in the business or a co-owner to any of the assets that will be collateralizing the loan, such as your personal home. Two years worth of business financial statements are also required including a balance sheet and income statement. Depending on your type of collateral; you may also need to provide a list of your accounts receivables and recent appraisals on your real estate and business equipment.
Have a Plan to Repay the Loan
Make sure that your financial projections include regular repayments of the business loan. Also make a Plan B to explain how the loan will be repaid if the business fails. Have your lawyer review your loan agreement, and make sure to read the fine print. It is critical to understand the lender requirements and how your collateral could be liquidated if the business fails. As much as possible, try use your business assets as collateral and not your home.
If you’re ready to start or grow your small business subscribe to Melinda Emerson’s blog. www.succeedasyourownboss.com
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