How To Get a Business Loan
You know you need cash for your business but before you look into a small business loan, consider other methods of business financing. Starting and running a business takes cash. Where will you get the cash for your business?
As a rule I advise those who are starting a service business to avoid accumulating debt. The benefit of financing your business by yourself is that you will not only not owe anyone, you will have more freedom to decide how you will grow your business. When you have the burden of paying back a small business loan your options are limited. This is especially true if you get money from investors. Even your friends and family may decide to put in their “two cents” after helping to finance your start-up.
The nice thing about a service business is that you have much less overhead than say, a retail business. If you’re a consultant, a bookkeeper, virtual assistant, or any of a number of businesses that allow you to work from home, then you can avoid the cost of renting a commercial location. Even a service such as hair care and travel can be operated for less than most businesses because you require minimal space and inventory. Therefore you should avoid loading yourself with the obligation of a small business loan.
Still, if you find that you need money to help you start and grow, here are some ideas and information to get you started.
First, you should consider dipping into your own savings and investments. If you don’t have any savings then maybe you should think about waiting until you do. Most small businesses fail within their first few years of operation. Why? Because of cash flow problems. You’ll want to have a cushion of savings to help you get through your growing stages.
After you’ve accumulated your savings, then consider asking friends and family for loans and investment funding. They may be more open to lending you money if they know that you have your own cash on the line too. Borrowing from friends and family can be a sticky issue. It’s a good idea to handle the loan as you would with a bank — create a loan document that’s signed and dated by all parties. The loan agreement should spell out interest rates, late fees, payment days and so forth. Each party should have a copy with original signatures. But think about this. What happens if you have trouble paying back the loan? How will you ever look them in them in the eye at holiday gatherings? I say avoid borrowing if you can. But it you must borrow and you’ve exhausted all other avenues then you can look into getting a small business loan.
You have probably heard of the Small Business Administration (SBA), a government agency that provides information, training, and financing for small businesses. In addition to the SBA are state and local economic development agencies and nonprofit organizations that can provide low-interest small business loans to small business owners. You may qualify for these loans even if you weren’t able to qualify for more traditional commercial loans through your bank.
Generally all loan programs require the same kind of information. If you want to explore loan opportunities then start assembling the information you’ll need so that you can make a good impression and simplify the whole process.
If someone wanted you to lend them money what would you want to know? You would probably want to know why they wanted the money, how they were going to use it, if they had any other debts that they were responsible for, and who was going to be managing this money. Well, any agency that lends you money will want to know the same information.
Consider your answers to the following questions:
• Why do you want the loan?
• How will the loan proceeds be used?
• What are you going to buy with the loan proceeds?
• Who is selling you the items that you will buy?
• What other debts do you owe?
• To whom do you owe these debts?
• Who is going to be managing the loan proceeds?
Other information you’ll be asked to provide will be:
• Background information such as education, criminal record, previous addresses and other names you’ve used.
• A resume detailing your work experience especially anything relating to management and business experience.
• A business plan that entails projections of your financial statement, a market plan, and an analysis of your market and your competition.
• Your credit report will be examined so you should obtain your own copies and review them for accuracy well before the loan process begins so that you can clear up any errors.
• Income tax returns for the past three years will be required to illustrate your history of earnings. If you don’t have them on file, you can get them from the IRS.
• Personal financial statements will be required from all owners of your business.
• Bank statements may also be required.
• If you’ve been in operation for a while, you may be asked for listing of your outstanding Accounts Receivable and Accounts Payable.
• Business license
• Article of incorporation if applicable
• Copies of contracts you have with third parties (such as contracts to provide services)
• Franchise agreement if applicable
• Commercial leases
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Categories: For Business Owners