5 Tips for Getting a Small Business Loan

by smallbizbee · 5 comments

There are two things small business owners and entrepreneurs never have enough of...time and money. While I can't help you get more time, my hope is I can help you get more money. The following 5 tips to getting a small business loan should point you in the right direction to getting the financing your business needs to grow and be successful.

1. Use a Blended Approach, Not the Tunnel Approach

Many small business owners approach the acquisition of new financing with what I call a Tunnel Approach. They see acquiring funding as the light at the other end of the tunnel, with only one way to get to the other side. More realistically businesses should use a blended approach to financing, using a variety of funding sources to meet their capital needs. For example, let's say you need to raise $50,0000. Instead of using the Tunnel Approach and soliciting financing from banks in the amount of $50,000 a blended approach may look like the following:

Why does a blended approach work? Quite often no one funding source will be willing to loan you the entire amount you require. In this case the bank may not want to loan you the entire $50,000 but are comfortable giving you $20,000. By using a blended approach, you still get the money you need and the risk is mitigated for each lender.

2. Get Your Paperwork in Order

At the very minimum you should be able to present to any prospective lender the following:

Business plan
Cash flow projections
Statement of personal financial situation
Past tax returns from the business
Credit report for your business

3. Get Your Credit in Order

Lenders like to give money to people who have borrowed before, and have a track record of paying that money back. It will be in your best interest to have some lines of credit established prior to seeking substantial capital. Establishing business credit cards (no matter how low the limit), lines of credit with vendors, and small unsecured loans will go a long way in getting yourself approved for larger sums of money. The key here is that these lines of credit need to show that you've paid on time and consistently. If you've missed some payments, or are currently late in paying, take some time to get your credit in order before you seek larger loans for your business. Also, your personal credit record could be a factor depending on the business structure you operate under and the type of loan you are looking for. It will be in your best interest to get your personal credit in order as well prior to seeking funding.

4. You're Selling Yourself as Much as Your Business

This is a facet of the lending process often overlooked. Many business owners feel that if their business is solid, their finances are stellar, and revenue is growing lenders will jump at a chance to give them money. Not so fast. The reality is that any outside lending source you approach for financing is sizing YOU up as an owner. Their goal as a lender is to make loans to people who will pay them back, and your character, vision for the business, ability to lead, and personal drive will all be factors in your ability to pay back. You may have a great business going, but if you are acquiring financing for growth yet come across as the kind of person unable to manage growth, how do you think you size up in the lenders eyes? Remember, you are selling your business concept, and yourself!

5. Be Realistic

Approach the finance journey with a healthy dose of realism and you'll be giving yourself the best chance for success. The process will be much like any other facet of your business. It will take time, perseverance, and many times it will seem like a dead end path, but if you stick with it and dedicate yourself to the quest you will see rewards for your efforts. Many people give up on the process much too soon. They go into the process thinking it will be a slam dunk, and when they find out it is anything but they get discouraged and quit. Not the way to run a business, and not the way to nail down the financing you'll need to grow.