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Successfully Obtaining a Small Business Loan

Working with a bank to obtain a small business loan can be an

easy or difficult process, depending on how prepared you are to

meet with the lender and discuss your business' situation and

needs.

One of the leading causes of business failure is insufficient

start-up capital. Ironically, though, lenders rarely approve

loan requests for the businesses that have the highest need for

a small business loan. Instead, lenders tend to prefer to offer

small business loans to those businesses that have been in

operation for two or more years.

According to All Business, it is estimated that 95 percent of

all entrepreneurs opened their businesses with capital from

their own pockets, or from money they borrowed from relatives,

friends, or another person in their community. Lenders want to

see business owners risk their own funds in the business

venture, and often require that the business owner or owners

provide a minimum of 25 percent of the capital needed to start a

business, and at least that much equity in the business if the

business is already in existence. Simply stated, lenders aren't

as willing to take a risk when a business owner doesn't even

risk their own money in the investment. Businesses with a

history demonstrating success in paying their bills for two and

a half to three years will have the easiest time obtaining a

small business loan because they've proven their ability to meet

financial obligations.

Preparing a Small Business Loan Proposal

When preparing to apply for a small business loan, be prepared

to face the facts that are against you, and use them in your

favor. Persistency is necessary if you want to land a small

business loan. Lenders follow certain criteria to determine if

the small business loan is a wise investment for the bank. Most

importantly, the bank will determine if the small business loan

is likely to be repaid. As with other businesses, banks and

other lenders must answer to their investors and stockholders,

and unpaid loans show instability in the bank or financial

institution.

Items compiled into a small business loan request include the

following: - Amount of money requested - Likeliness of business

profitability and demonstration of cash flow needed to service a

small business loan - Collateral, if any is owned by the

business - A reasonable balance between debt and equity

Know Your Banker

Whether you have a start-up small business or an established

small business, the first step in obtaining financing through a

small business loan is to develop a business relationship with

your banker. Consider asking your bank's manager to open a file

for your business, and provide quarterly or yearly profit and

loss statements. When your business is in need of financing, the

bank will already have a file and will be at least somewhat

familiar with your operations. When the time comes to apply for

a small business loan, approach the banker with a solid business

plan to inspire the lender's confidence in your business.

Provide information on business operations, marketing efforts,

management ability, and financial projections for three years,

as well as a cash flow projection and personal balance sheet

demonstrating the worthiness of the business.

To prove worthiness for a small business loan, prepare proper

documentation. Keep your credit reports as clean as possible. A

lender will assume that you operate your business in the same

manner that you manage your personal finances. The lower your

credit rating, the slimmer your chances are of obtaining a small

business loan.

When applying for a small business loan, search for a lender by

first approaching the bank or banks in which you currently do

business. Since you'll need to share all of your personal and

business financial information, it can be beneficial to apply

with a financial institution that already has that information

on file and is perhaps familiar with your profile and spending

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habits. If your credit rating is high, your changes are good of

being approved for the small business loan.

If you are unable to work with a bank or credit union in which

you currently do business, or if you'd prefer not to work with

your bank or credit union for your small business loan, look for

a lender who wants your business. Search the business section of

your local newspapers for special financing offers on small

business loans and other loans. These lenders are actively

looking for people needing small business loans, and the process

of obtaining a small business loan with these types of lenders

may be easier and faster. Additionally, check into credit

unions. Because credit unions tend to be smaller financial

institutions, you may be able to speak directly with a loan

decision maker. Larger banks and other types of large lenders

may have more rigid rules for small business loans, and the

processes that they employ may be more complicated for small

business loans.

If, at First, You Don't Succeed

If your first attempt at obtaining a small business loan fails,

don't be discouraged. Small business loans are often not

approved with the first lender that you approach, and be assured

that you're not alone. Especially if you have a start-up

business, lenders don't always approve small business loans,

even in the most ideal situations. Search for other lenders, or

become resourceful and look into other sources for loans rather

than a small business loan, including home equity loans and

personal loans, both of which can be used for business purposes.

About the author:

Rebecca Game is the founder of Digital Women ®, an online

community for women in business. A 30 year entrepreneur and

dedicated to helping other women find small business loans.

Visit her site: Loans for Women

http://www.digital-women.com