As the job market and overall economy in general continue to improve, lenders seem to be beginning to loosen up capital for more and more business loans. Programs designed to incentivize banks to make loans to small businesses, in the hopes that those businesses will then use the cash influx to create jobs, make loans possible even for less-than-stellar applicants.
It has been, however, a daunting few years economically, and uncertainty combined with new regulations means businesses seeking loans must be thorough, diligent, and careful in seeking cash to expand.
Look into SBA Loans
The Small Business Administration, or SBA, is a governmental agency that deals exclusively with small businesses. They give free information and provide detailed articles and insight into business issues of all kinds.
Most importantly for a business seeking capital, they offer SBA loans. Although they don’t loan money directly, SBA loans offer guidelines to lenders and recipients that, if followed, will guarantee reimbursement to the bank even if your business can’t pay them back. A government-backed guarantee is a very strong weapon to hold walking into a lender’s office.
Banks want to loan money and form partnerships with successful businesses. In uncertain times, however, large national banks have the resources to go into financial hibernation for extended periods of time. Small, local banks, lenders, and credit unions, however, are especially susceptible to the pressures of the lean times and are often willing to offer better rates and looser standards simply as a survival mechanism.
Get it Right the First Time
Frequent credit inquiries and a few rejections don’t increase your chances of getting a loan at the next place you try. Get your financial house in order before you go seeking funds. Check your credit report and purchase your score and look into your recent financial books. Generally, banks require a business to have been profitable for at least the last three years to secure funding.
Get Your Loan’s Back
Be prepared to back up your loan personally. If you don’t have enough business assets to put up as collateral, offer to pair what you do have with a personal guarantee of repayment.
The paperwork varies by institution, but someone seeking a business loan is almost certain to be asked the following questions: Why are you applying for this loan? How will the loan proceeds be used? What assets need to be purchased, and who are your suppliers? What other business debt do you have, and who are your creditors? Who are the members of your management team? Be prepared to answer correctly and honestly, and to be able to tell the story of your company and explain why a loan is appropriate.
Lenders want to lend money to businesses. If they gamble wisely and your business succeeds, they stand to profit handsomely and secure your future business. Give them the security they crave, especially in uncertain economic times, by having your own house in order and backing your request with a guarantee.
Andrew Lisa is a freelance writer living in Los Angeles. He writes about small business and personal finance, and profiles top business leaders such as Steve Wynn.