7 tips for a successful business loan

Money tends to rate high up on the list of needs for people planning on starting or moving into business ownership.  Here's 7 tips if you need start up financing for your business.

The best place to start is 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 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 al the planning by all parties has been a waste of time.

How much capital do you need and why?  Is it to buy equipment, buy inventory, pay a franchise fee, downpayment 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.

There are different lenders that focus in different areas of the market.  The obvious 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.  If you're still looking for options, the Small Business Administration (SBA) has a wealth of knowledge.  If you still need options, search the internet but 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 key words and you will come across lenders that provide factoring.  Once you find some companies that can help, make sure you are comfortable working with them and research the full costs and terms of the loans.

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 on how to write your business plan, look for the article I've written called "10 tips for your next business plan."

Supporting your loan application also includes looking at your credit score and credit history.  These two points are important.  If your credit score is in poor shape and you can clearly explain why and the lender is comfortable with the explanation, they may approve your loan.  For example, if you had an auto accident a few years ago that resulted in medical bills that are now under control, your poor credit score is explainable.  Similarly, before applying for a loan get a copy of your credit report.  Often there are mistakes on your credit report.  Get these removed before applying for a loan so this problem is eliminated. 

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.  From the Home Page choose the "Samples" tab on the left hand side and go to item 4 which is a bank loan application form so you can see the questions they ask.  Item 5 is a Personal Financial Statement while item 6 is a Loan Amortization Schedule that shows you how long and how much it will require each month to pay back a loan.  Plus there are other options; all for free.

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 they are looking to see that you believe and that if they need to escalate your loan request to higher management, you will present strongly and not have their judgment questioned.

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 all about in the first place.