The best way to get a start-up business loan is to have a definable business plan.
A business plan should be easy to read, well articulated on what your goals are in the business or project. It should contain projections and market evaluations on how your project or business is going to fit in the overall scheme of things.
Once you present the business plan to your lender, together with your personal resume, you get the opportunity to negotiate with a venture capitalist on how much they’re going to charge you to put up the money and therefore be part of your success story.
It is important to make sure that you have a clear definable path is what makes it happen.
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A business loan is a loan explicitly targeted toward financing your business. The business loan can be a startup loan or the funding can be used on an existing business and to fund expenses, new equipment, expansion, or as a debt consolidation loan. These are just a few things the loan can be used for.
Where do you go to get a business loan?
Start at the top. Go to the US government loan website. The website address is www.GovLoans.gov. This site not only has loan information, but information on lenders, programs and even tools that will help you determine if you are qualified as a small, medium or large business. There is information on eleven government agency loan programs and a list of agencies that can provide information and assistance for applying for these programs. The starting point is a short questionnaire that will determine your eligibility for any of the government loan programs. This site will also allow you to compare options and get general information.
The U.S. Small Business Administration or SBA is a specific organization designed to, “aid, counsel, assist, and protect the interests of small business concerns, and advocate on their behalf within the Government.” If your business was affected by a disaster, there is a program for that. This site provides more than financial assistance. The SBA also provides contractual assistance, and business development assistance.
Under the Other Resources tab on the loan portion of the website you will find a lot of helpful information. No matter if you qualify for a government business loan or not, at this site there are resources to help prepare a loan proposal for your business. You’ll find a checklist of items that you will need to gather and prepare when you apply for a loan. There are other resources to help you decide where to go for bids if you are searching for a loan. These resources include listing qualified and vetted lenders of all sizes.
What do you need to prepare to ask for the Business Loan?
The paperwork varies. But there is paperwork and lots of it. There will be a loan application that asks for specific information. Business and/or personal tax returns and bank statements will be on the list. You’ll need to be neat, methodical and provide everything they ask for. It’s likely a creditor will want you to tell them how much money you need and detail what it will be used for. They’ll want a detailed business plan and look at the appropriate credit reports.
What mistakes can I avoid?
Make a checklist of what the lender asks for and anything else you think will help. Remember the SBA website above has a checklist for putting together a package for business loans. Don’t forget anything. That would be mistake number one.
Keep everything organized. If there is quite a bit of paperwork, it might be a good idea to put it in a small three-ring binder with tabs for the requested documentation. Disorganized paperwork is mistake number two and could delay the loan processing.
Don’t assume the loan officer or lender knows your business or what you’re talking about or have described on paper. When you are putting together your business plan or supporting documentation, be very careful to stay away from using terms that may be well-know to business insiders, but aren’t recognizable by the general public. Acronyms are big pitfalls. Spell out the terms, make sure you include definitions or make the plans and data understandable by anyone. Mistake number three is assuming that everyone knows your industries lingo.
Mistake number four; don’t have someone else read the business proposal and supporting documentation. This is important on several levels. Make your reader someone who has good English and Editing skills, but understands nothing about your business. This way they can catch spelling and grammar errors and spot all the mistake number threes.
Mistake number five is to assume there is no risk. Everything has risk. Walking across the street is risky. Opening a business is definitely a risk. Don’t ignore the risk or the lender will believe you are ill-prepared to run a business.
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A business loan is a loan expressly intended to finance your business. The business loan can be the initial loan to pay startup costs or the loan can be on an existing business and used to fund expenses, new equipment, expansion, or as a debt consolidation loan. These are just a few things the loan can be used for.
Secured Business Loan
One type of business loan can be secured by the existing business. It can be secured by accounts receivable or real-property owned by the business. Real-property might be the building used to house the business, or facilities like a carwash, owned storage facility or other collateral property. Other secured loans are often taken out on equipment like automobiles, heavy machinery or inventory.
Unsecured Business Loan
An unsecured loan might be issued based on past business performance, business credit worthiness or is a signature loan based on the owners credit worthiness. These types of loans normally have a cap of a few thousand dollars and the interest rate is higher than a secured loan. The payback period may be shorter as well.
Business Loan With Personal Guarantee
A third type of business loan can be issued with a personal guarantee or secured with personal assets. Often the personal asset used to secure a small business loan includes the owner’s personal residence.
Terms Vary
The rate and term of a business loan is based on whether or not the loan is secured or not, the businesses credit worthiness, and of course…the ability to make payments. For smaller businesses, the owner’s credit report might also be included in the decision. The maximum time for payback on a business loan traditionally runs at about fifteen years.
Business loan funding comes from financial institutions, individuals, or organizations. The variables on a loan include the amount, payback term, rate of interest, business or individual qualifications, and the number of lenders needed to satisfy the desired loan amount.
Qualification Process
The requirements for getting a business loan also vary. But everything starts with paperwork. You’ll need neat, data rich documentation that will sway the lender to issue the loan and asses a specific loan repayment plan. A creditor will want you to present how much money you need and what it will be used for. They’ll want to see a detailed business plan and be apprised of the planned contingency options if things don’t go as you’ve projected. They will look at the business’ credit report and/or your personal credit report. As with any loan, the better your FICA scores and the more thought out, confident and concise you are in the required paperwork and in person—the better chance you’ll have of securing the loan.
First Mistake
On the other hand, if you meet with the loan officer without the right documents, missing information and with disorganized paperwork, you will delay the loan processing. Ultimately your poor groundwork may cause you to be turned down for the loan just for your lack of preparation.
In the current economy especially, money lending for small businesses is at an all time low. If all things are equal across several loan applications, lenders are going to focus on the ones who are better prepared and organized.
Assume The Lenders Don’t Know Your Business
When you are putting together your business plan and data sheets on the business, don’t assume the loan officer or lender knows what you are talking about. Be very careful to stay away from using terms that may be well-know to business insiders, but aren’t recognizable by the general public. Acronyms are big pitfalls. Spell out the terms, make sure you include definitions or make the plans and data understandable by anyone.
It might be advantageous to have someone who isn’t involved in the business, read the plans and information. They can point out any confusing issues and this will give you the opportunity to make clarifications before you present the loan documentation.
Conclusion
There are several types of business loans, including secured and unsecured loans. Getting a business loan can be a time intensive process. The loan process can be affected by the amount of time and effort you put into preparing the documents.
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