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How To Apply For A Small Business Loan

Written by: Candice Clem

Article Overview: Starting a small business without private investors or a loan is next to impossible for most entrepreneurs, so if a loan is in your small business future, check out the best way to go about acquiring one.

How To Apply For A Small Business Loan

The American dream of life, liberty and the pursuit of happiness, or even the old adage of two cars in the garage and a chicken in every pot is often exemplified in the American small business. Too many people seem to focus on the ideal of "being your own boss" while overlooking one of the greatest benefits there is to owning your own business: financial independence. While it’s true that not every small business owner will become independently wealthy, and it’s also true that all of those late-night infomercials promising to make you a millionaire over night are promising more than they can deliver, it is entirely possible to achieve your financial goals and love what you do with a small business.

Whether you’ve always wanted to own your own business, or you’re simply curious to see what it entails, the hardest part of starting up is inevitably finding the right small business loan. Small business startups can often be risky, and in an unstable economy, it may be harder than ever to secure a loan, particularly if you’ve never owned your own business before. There is, however, an alternative to the traditional small business startup that exists in the form of a small business franchise. The typical franchise is essentially a small business for sale where you (the franchisee) select the perfect business and then purchase the right to own and operate your own carbon copy of the business from the franchise headquarters (the franchisor). At first glance, it would be easy to assume that this is a step in the wrong direction, thinking that purchasing a franchise would only add more of a headache to the already difficult fundraising process, but in practice, it makes it much easier to acquire a loan, increases the likelihood that your business will survive and in many cases, a franchise will be cheaper than a similar non-franchise, small business startup.

We’ll discuss how a franchise makes the small business process much easier throughout this article, but the actual process of acquiring a small business loan is best broken into three categories. Each one is a question that you must ask yourself, and the answers to these questions will not only help you to think through your small business and figure out exactly what you need from your lender, but it will also help you to build the framework that your business plan will hang on.

How Much Do I Need?

This is most likely the first question any lender will want to know from anyone looking to borrow money, and if you want to gain a vote of confidence from your lender, you will need to know all of the costs associated with the business. It’s very easy to become short-sighted when asking how much you need, because the tendency is to think about what is the bare minimum needed to survive, rather than what is the best amount that will set you and your business up for a win. Typically, you will need to figure in startup costs (building lease, equipment, advertising, employee training, etc.) as well as the liquid capital that your business requires to operate for six months. This is because many businesses do not profit within the first six months, and if they do, the profits will generally go towards repaying the bank or investors, and not into your pockets. A franchise small business opportunity simplifies this process greatly by letting you know up-front all of the costs that you will incur as well as laying out the average costs for the business for the first six months so that all the work of asking "how much do I need" is done for you by the franchisor. For example, if you choose to open up a franchise with Famous Uncle Al’s Hot Dogs, you may have a rough idea of what kind of location you’ll need, but you will receive with your franchise packet a detailed list of all of the required equipment, signage and any other items you’ll need to purchase in order to have a successful launch.

What Do I Need It For?

The loan process can be difficult for a first time small business owner for a number of reasons, but most often it comes down to the business plan. If you’ve never written a business plan, it can be very intimidating, but working through it and making it accurate and attractive to investors will be well worth the time. Your business plan should contain detailed information about the total costs involved with the business, projected income and, perhaps most importantly, similar businesses and what kind of track record they have had in your area. If you’re not quite ready to craft your own business plan, consider that with a small business franchise, all of the work of writing the business plan is done for you ahead of time by the franchisor. Detailed analysis’ of other franchises will also help you to land the loan you need, since with a franchise, there are hundreds (if not thousands) of small businesses all over the country that have shown great success with the exact same business plan.

Brow Art 23 is a perfect example of how a franchise can help you start your own small business. They offer a decidedly unique line of products and services including eyebrow threading, henna tattoos and permanent makeup. This is definitely a niche market business, so imagine the difficulty you would have trying to convince a bank to loan you the money for such a unique type of small business. Brow Art 23 has done the hard work for you by setting up their small business, proving that it is a viable and money making endeavor and then creating franchises that can get into this unique market with the backing and strong track record of a successful franchise.

How Long Do I Need It?

Finally, lenders will want to know your plan for repaying the loan. Although it would be nice if every small business was an instant success and you could pay back the loan in the first year, often times the lender will need a strict timeline for the repayment. This can be tough to nail down because there are so many variables associated with starting a small business that it will be hard to say with any confidence how quickly you will be able to pay back the loan. Once again, enter the small business franchise. Franchisors will be able to offer many comparable franchises in similar locations to yours, show how quickly they were able to become profitable and then set you up with a good idea of how quickly your business will be able to recoup. Snip-its Haid Cuts For Kids is a successful hair cut franchise with an angle that makes it a cut above the rest. This kid-focused business elaborately decorates the inside of the business to be fun and inviting to kids, which not only puts frightened children at ease, but also allows the small business to charge a premium for its experiential atmosphere. With several new franchisees in the last few years, Snip-its Haid Cuts For Kids will have a very realistic idea of when the business will become profitable, how long it will take to recoup and what kind of profits a franchisee can expect out of the business once the business loans are paid off.

Small businesses of any kind can be financially lucrative as well as personally rewarding, but the security and ease of a small business franchise is often more appealing to the average small business owner than the prospect of having to start everything from scratch. If you’re looking to own your own small business without having to take such a large risk or having to re-invent the wheel when coming up with your business plan, take a look at the franchises mentioned above as well as the many other small business franchises available and you’re sure to find one that suits you perfectly.

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These maybe the coldest franchises out there: - Here are the worst 15 performing franchises in regards to having the highest Small Business Administration (SBA) loan failure rates. The list is dotted with sub sandwich shops, fitness centers and car shops. WORST FRANCHISE LOAN FAILURES Failure % 1 OBEE'S SOUP SALAD SUBS 55.56% 2 LADY OF AMERICA 41.94% 3 COUNTRY CLUTTER (BED & BREAKFAST) 41.18% 4 COPY CLUB 36.36% 5 ALL TUNE AND LUBE 35.71% 6 PICKERMAN'S 35.71% 7 PHILLY CONNECTION 35.59% 8 ROLY POLY ROLLED SANDWICHES 34.78% 9 COTTMAN TRANSMISSION 34.48% 10 HAIR COLOR EXPRESS 33.33% 11 LEE MYLES AUTOMOTIVE TRANSMISSIONS 33.33% 12 GODFATHER'S PIZZA 33.33% 13 SMOOTHIE FACTORY 33.33% 14 BLIMPIE 31.39% 15 GOLF U.S.A. (RETAIL GOLF EQUIP.) 30.77% Source: Small Business Administration, SBA Loan Performance Within Franchise Code for the Period of FY 2001 - 2005
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
re: restaurant start-up - I'm not sure about government grants for restaurants, but my recommendation would be to approach a lender that offers loans under the Canadian Small Business Financing Loan program where the government will guarantee 85% of the loan. You can borrow up to $250,000 to finance equipment and renovations under this program. Restaurants are very risky business, however some of the Chartered Banks will look at restaurants if there is enough of an initial equity investment and you have a solid business plan (experienced management team, good concept and strategic location).
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
Re: Biz Plan Competition - i just wanted to say that posting Small Business Events on CanadaOne is a great resource. Thanks Julie!


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