Money is the lifeline of any business, so whether you’re starting a
business or running an existing one, securing financing is a major
factor. Many budding entrepreneurs find the task daunting and don’t even
know where to begin.
We do not encourage unnecessary borrowing, however when you must borrow
here’s a simple and practical guide on how to go about preparing to
apply for a small business loan.
*What criteria do banks look for in making small business loans?*
Different banks or lending institutions may have different standards,
but in general, in order to consider your application for a small
business loan, banks will require:
*
The loan must be for a sound business purpose. The business must be
eligible based on size, use of loan proceeds and the nature of the
business.
*
You and your business partner(s) must be of good character, have
experience and good personal and/or business credit history .
*
The ability to pay back the loan and reasonable to strong collateral
is very important. And of course, owners must have personal equity
investment in the business, know as “skin in the gameâ€.
*What information will you need?*
Different lenders may require more or fewer documents, but in general,
you will need:
*
Personal and business credit history
*
Personal and business financial statements for existing and start-up
businesses as well as projected financial statements
*
Strong, detailed business plan including personal information such
as bios, education, etc.
*
Cash flow projections for at least a year, and
*
Personal guaranties from all principal owners of the business
*How can you set yourself up from the beginning to make the process
easier? *
Be prepared; be thorough; be truthful.
*
Choose your lending institution carefully. Larger banks tend to shy
away from small loans as they are less profitable and take the same
amount of underwriting and servicing. That doesn’t mean large banks
do not make small loans; it is just more difficult.
*
Approach banks or lending institutions you have worked with or of
which you are a customer.
*
Explore community banks and Credit Unions.
*
Talk to a lending officer and find out exactly what documentation
they require.
*
Be thorough, bring everything they ask. Many loan applications are
denied or face unnecessary hurdles because of incomplete applications.
*What is the typical size of a small business loan?*
Small businesses come in many sizes, from a start-up of a one-person
company to hundreds of employees, and their financial needs vary
accordingly, so “typical†also varies. That said, in the banking
industry the median small business loan is about $130,000 – $140,000
with highest around $250,000.
*How can you get financing to start a business since many banks want to
fund growth?*
Start-ups are probably the most difficult ventures when it comes to
securing financing. Many start-up businesses seek financing from family,
friends and credit cards. Again, we do not encourage credit card
financing as this is the most expensive and the hardest to eventually
pay back.
If the credit is sound, the business plan strong and you have enough
personal resources to invest and collateral to guarantee, smaller,
community banks and other community financial institutions and Credit
Unions may consider lending you money.
*Where do you turn for help?*
*Premiere Business Services offers consulting for new and existing
businesses. You also will want to have conversation with your banks loan
officer and even your attorney.*
