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What Do You Need to Get a Small Business Loan?

Guest post by: MIchael Daley

Article Overview: Sooner or later most small businesses need to get a small business loan, whether to get the operating capital for business startup or to finance an expansion. But whether you're approaching a bank or a friend for a small business loan, the lender will have the same expectations. You can greatly increase your chances of successfully securing a small business loan by being prepared to meet those expectations.

What Do You Need to Get a Small Business Loan?

Getting a loan for a small business is quite difficult these days. This goes from a start up to an existing business wanting to expand or get some cash flow to add sales people and generate income.

The same criteria have always been in place with lenders when they consider sourcing a loan. You will need a business plan that tells the lender:

• How you plan to use the funds and what results will be forthcoming.
• Do you have a record of a good personal credit history?
• Do you have experience in the industry your business will operate?
• How will your business operate? Who are the suppliers?
• How will you let people know about your business and how will you sell the products or services?
• What will make your business unique?
• How do you know there is a demand for your business model?
• Will you have enough cash at the end of each month to open the doors the next month? What is your debt to equity ratio?
• What does the profit forecast look like at the end of 12 months?
• How will the loan be repaid if the business fails?

The last question deals with collateral. It is probably the most important question a lender will ask since in today's economic climate, lenders do not want to take any chance of a loan default and not getting the cash to cover the balance. So the question "How can you repay the loan?", or in simple terms, where can the bank go to get their money if your business goes under, is of paramount importance.

As in the stock market, lenders do not like uncertainty. Lenders want to trust their customers. So your plan should be realistic, optimistic, and pessimistic. What I mean is that the plan should contain financial forecasts that are based on real data. Any optimistic spurts or growth opportunities should be fully explained and detailed to tell the lender how the growth will happen. Yet it should also show the lender you have thought of ways the business could potentially fail. List five challenges and how you would overcome them. This will limit any questions from the loan committee and show them you fully understand the nature of the business.

Do not ignore the biggest risk to your business: key-person risk. If you or your business partners are incapacitated or die tomorrow, could the business repay the loan? A substantial life insurance policy might be morbid and expensive, but it shows the lender that you are helping reduce their exposure to risk.

Here is one last, important item to consider whenapplying for a business loan: Do the business plan by yourself!

So in the end all the pieces must fall together. Put together a solid relationship with the lender, a convincing business plan, a business management forecast that minimizes the risk for the lender, and a rational business model that shows upside potential for the lender and you might, just might, be ready to negotiate for a loan package.

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Article Tags: business plan, debt to equity, expand, generate income, growth, personal credit history, profit forecast, small business, small business loan, startup



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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.
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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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