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7 tips for a successful business loan

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Article Overview: The economy is starting to heal and small business owners are readying to get back into business. This includes borrowing money so they can successfully start, buy or grow their business. This article offers 7 tips to use when making your application for your next business loan and get a “yes” rather than a “no.”

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.

1. Clearly identify how much you have available. 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.

2. Identify what you need. 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.

3. Research your options. 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.

4. Support your loan application. 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.

5. Build cash flow projections. 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.

6. Sell your need. 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.

7. Keep educating yourself. 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.

Obtaining a loan or finance for a business has been very difficult. Because the economy is stabilizing and government programs are beginning to have a positive effect, loans are available as long as you the borrower, present a professional business case.

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Article Tags: Andrew Rogerson, Business broker Sacramento, business escrow, business opportunity, business plan, business transaction, due diligence, Murphy Business and Financial Sacramento, Sacramento Business Broker, Sacramento business ownership, SBA 7a loan, SBA Loan



Related Forum Posts
Financing - Actually, his suggestions will work for any business. A few details were adjusted to fit the content and subject of the book, but the tips to prepare for a loan application, acquiring financing etc are consistent. What sort of business venture are you working on? You could easily take that article and insert almost any business where it says "pizza shop" and the principles are the same. To apply for a loan, people need to have good credit, the same documents need to be collected and its a great idea to know how much you need and to have a business plan to support your numbers etc. Chris
timeframe for loan process - In general, it should not take more than 10 - 12 weeks once the lender has your loan package. Unfortunately, I have heard horror stories where 4 - 6 months after the person submitted their loan package, they still have not closed on their loan and some cannot even get in touch with the lender for an update. (not with my business and the lenders we deal with, but others have told me this when they contacted us after they were fed up with their current lender). I think it's dependendent upon whether or not you have gone to the right lender for your type of business loan and also dependent upon whether you have packaged the loan properly. When a loan has not been packaged properly, lenders will not even review it. It can sit on their desk for any legnth of time before they get around to sending it back to you "declined" (for improper packaging). It's best to have your loan professionally packaged. That's the beauty of dealing with a loan broker or other professional who provides this type of service. It's best to seek out professionals who specialize in your specific type of business loan. The loan goes through diffrent stages. The first stage is the initial review by the lender, where the Lender will decide if you are favorable for loan approval. If you are, the loan will be sent onto the underwriters and you may or may not receive a proposal letter from the lender (it depends upon the lender). this letter may need to be signed and returned. The lenders initial review should take anywhere from 5- 10 business days. The second stage, is the underwriters review where your loan with either be approved or denied. This is a crucial stage and can take about 3- 4 weeks. Once approved you will receive an approval letter that needs to be reveiwed by you (or your lawyer) carefully. this letter needs to be signed and returned in order for your loan to go through the final stage. The third and final stage is your loan closing. This is where everything is finalized so they can fund. This stage can take another 3 - 4 weeks. Keep in mind that if you are dealing with a loan broker, you should add another 2 - 3 weeks to your loan timeframe as it will take about this long for the loan broker to gather and process all your documentation and package it and get it off to the lender (this includes delivery time).
Using your home for collateral is one thing, but... - Putting up your home for collateral is one thing, but utilizing the equity in it to finance a business is a whole other ball game and could be damaging in the long run. Do you know that if you completely finance your business with home equity instead of a busienss loan you will not be able to obtain a working capital loan later down the road? should you run into some financial troubles or wish to expand or remodel with working capital loan, you won't be able to get it if you finaced by personal means. It's always best to build a track record with a lender for future use and it's always better to be in business debt rather than personal debt. I always say: "You wouldn't hire a Plumber to do the Electrical in your home, so why would you finance a business using your home equity? Equity loans are for your home, business loans are for your business. You may however, utilize some of the equity in your home for loan down payment (depending upon your qualifications) and we can help determine whether that would be more helpful or damaging to your loan by pre-qualifying you for free. when using your home for collateral, it doesn't necessarily mean you will lose your home (in the event you cannot pay your loan payments). Lenders are always willing to work with you once you have a loan with them and they have already taken on the risk. they typically only utilize what they lien if nothing else can be resoloved (so it's basically a last resort) to go after what they lien.
Re: home loan - Hello, It's hard to say whether or not a bank would be willing to give a loan with those credit scores. Typically in the past it would still be possible to get a loan, you would just end up with a higher interest rate. But with the turn the economy has taken and the extra restrictions lenders are imposing, I'd say your best chances of getting a loan in a year would be to continue working on increasing your credit score in the meantime. It's possibly to turn your credit score around in 6 months to a year, so I would suggest doing a search on "how to increase your credit score" and start putting some of the tips to use now. Best of luck to you! Stephanie Horne
Women getting financed - Spouses shouldn't be co-signers, they should be part of the loan. Lenders prefer married couples to apply together, it stregnthens the loan because the female can show outside income while she's managing her new business. Outside income means showing a lender there is other income aside from what she is drawing on her new business. A lot of women apply alone and only show their assets and do not include their husbands which is a mistake. All assets, regardless of who's name they are in are considered joint assets in a lenders eye. When you show all assets it stregnthens the loan because you are showing stronger net worth / collateral making for easier loan approval. We understand that the woman prefer to do it alone, but she has to ask herself what's more important getting financed or trying to do it alone? A husband can be on a loan application at a very small percentage (5%) and doesn't ever have to take part in running the business. And when listed on the application (under 20%) the lender will not look into the husbands credit or personal history (so he is pretty much kept out of the loop) but can help stregnthen that loan in order to obtain approval.


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