10 Tips for Getting a Small Business Loan

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There are few businesses that are able to survive without needing an extra line of credit or a loan at one point or another.

Small businesses face situations on a regular basis that they would be able to fix, or improve on, if only they had a little more money. Ann Johnson-Stromberg, program director of the Northern California Small Business Development Center (SBDC) Network, said in order to establish new markets, new products or new territories or locations, investments need to be made.

"Most existing small business owners don't have a large rainy-day fund to make substantial investments in their operation," Johnson-Stromberg told Business News Daily. "In these types of situations, going after debt financing is a less expensive alternative, particularly because it allows the owner to avoid selling off a percentage of the company."

"The reality of the situation is that only businesses that are reasonably healthy can obtain financing," Johnson-Stromberg said.

Visa Small Business and America's Small Business Development Centers, which recently announced a partnership to bring added educational opportunities to SBDC business advisers, offer small business owners 10 tips to help guide them through the process of obtaining funding.

• Credit score: Since it's one of the first things a lender looks at when reviewing a loan application, it is important to know what your credit score is. FICO scores range from 300 to 850. It's challenging for a business with a score of less than 600 to secure business credit from a financial institution.
• Understand your options: It's important to identify why you're borrowing money and account for any product or marketplace changes. Review and revise your budget and make sure to borrow only what you know you can pay back.

 

• Financial statements: Have a professional analyze your financial statements before asking for a loan. They can help you clean up simple mistakes and unnecessary red flags for potential lenders.
• Have a repayment plan: It is critical to have a plan to pay back your loan. Business owners should prepare projections with expenses and earnings and incorporate the new loan payments into your plan. Additionally, including a safety plan in case projections fall short will show lenders you're committed to repaying the debt.
• Provide collateral: Since collateral is essential to business lending in today's market, small businesses owners should be willing to provide a collateral package to their lender. Without collateral, a lender relies solely on future performance or existing cash flow to repay the debt. That often translates into higher risk and interest rates for borrowers.
• Know your industry: It is critical to make sure your business is not grouped into industry trends that fail to adequately reflect your company's future. Explain to lenders what's happening within your industry and how you're approaching future opportunities.
• Personal guarantees: In order to send a clear message that you stand behind your business and its performance, provide your lender with a personal guarantee. It's a red flag to lenders when questions arise about the development of a corporation to protect personal assets.
• Increase cash flow: A recent survey revealed that nearly half of small business owners say cash flow would be the most beneficial process improvement. This indicates owners are struggling with cash flow more than any other business process. Turn to reliable and convenient ways to pay and be paid, such as electronic payments, which don't require cash or checks to be handled, counted or deposited.
• Be on time: Paying bills on time will help improve credit ratings and increase credit capacity. As a result, you may get better interest rates, loan terms and e-payment acceptance costs.
• Business credit cards: While small business owners may be tempted to use personal credit cards, the best bet is to use a business credit card to limit personal liability and make it easier to track business expenses.