The U.S. Small Business Association (SBA) has published an enlightening article on their blog titled “6-Step Guide – How to Get a Business Loan.” This great article offers a host of excellent tips for fledgling and veteran business owners to secure funding fast. We at Lendio liked it so much that we decided to use it as a guide for our own set of tips for securing a small business loan.
Three Fail-Safe Tips for Funding Your Business
1. Know What Bankers Look For
It is essential that you know the four main elements that govern what the best financing alternative for your business is before getting into the different options: They are:
- Length of time the business has been in operation
- Your personal credit score
- Profits and revenues of your business
- Whether or not you have collateral that can secure the loan
As you can see from the second element listed above, your finances will still examine personal credit scores as a way to judge the dependability of the principals borrowing money. Most lenders will look for a credit score between 700 and 800 though scores of 650-700 are considered acceptable. Personal debt payments should not be more than 33 percent of gross monthly income.
Once you know what bankers are looking for, and you’ve determined your credit score, you should figure out how much you need to borrow and when. This is an important step: borrow too little and you could end up having to abandon the venture halfway; too much and you have to pay interest on the extra.
2. Find the Bank that Best Fits Your Needs
Obviously, going to a bank that does not offer the type of financing your business needs is a huge waste of your time. Use the tools on Lendio to find your best fit, and concentrate on these. Tell them upfront that you’re talking to other banks, so they’ll know that they’re competing for your business. You can also consider working through the SBA or other alternative lenders to secure better terms.
Alternatives to traditional banks include microloans, merchant cash advances, credit cards, home equity lines of credit, revenue-based loans, and of course, friends and family. You should take a second look at these options if your credit rating is below 650, a rate below which most banks would think twice about funding your business.
Once you find the right lender, find out what the terms of your small business loan will be. You may need to pledge some of your business’ (and personal) hard assets for use as collateral. You may also be required to produce a business plan. It’s also a good idea to have ready all of your business’ financial details, as well as details on accounts receivable and payable.
3. Have Ready Proof that Your Business is a Great Investment
Cash is king and is also a good forecaster of a business’ condition and an outlook for the future. Show prospective financiers that you have plenty of money to pay staff, creditors, and others on time by showing you have stable and/or sufficient cash flow. Make sure to be clear and show your financer what is your anticipated cash flow for the coming year.
You should also be clear on the type of financing you’re looking for (short-term or long-term) and show that your business is the right fit for it. Again Lendio can help you sort through the options available to you, and find the lender that’s right for you. All you have to do is prepare to wow your potential creditor with your business plan and cash flow projections for the short and medium terms, and in some cases the long term as well.
Be prepared to disclose exactly what you need the loan for. Most small companies apply for loans to acquire assets, expand their business, purchase working capital, and finance projects. If you don’t have sufficient collateral to secure financing, be prepared to personally guarantee the loan. This guarantee is expected to be at least equal in value to the loan you’re seeking.
This guide should give you a pretty good idea of the abundance of options available to fund your business, and how you can prepare for your loan interview in order to make the process easier and faster. This is just a sampling – a lot of hidden gems exist, which you will discover as you use the tools provided in this article. Need help to figure out the best option for your business? Click here to visit Lendio and experience what they can do to secure the future of your small company today.