Are you looking for tips for a successful business loan? Money tends to rate high on the list of needs for people planning on starting or moving into business ownership. Here are 7 tips if you need financing for your business.
1. Clearly identify how much you have available.
The best place to start is with 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 and 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 all 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, down payment 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 prominent 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. Another option is the Small Business Administration (SBA) website, which has a wealth of knowledge. Still, need more options? Search the web and 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 keywords, and you will come across lenders that provide factoring. Once you find some companies that can help, ensure 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 writing your business plan, look for the article I’ve written called “10 tips for your next business plan.”
Supporting your loan application also includes reviewing your credit score and history. These two points are essential. If your credit score is in poor shape and you can clearly explain why, and the lender is comfortable, they may approve your loan. For example, your poor credit score is explainable if you had an auto accident a few years ago that resulted in medical bills now under control. Similarly, get a copy of your credit report before applying for a loan. 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.
If you want some free tools to help put your loan together, visit my website and download item 3, which is a tool for a break-even analysis. Item 4 is a Loan Amortization Schedule that shows you how long and how much it will take each month to pay back a loan. Plus, there are other options.
6. Sell your needs.
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 to see that you believe and that if they need to escalate your loan request to higher management, you will present powerfully 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 is all about in the first place.
Obtaining a loan or financing 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.
