Getting a Small Business Loan

[Apr 23, 2010.]

 

What does it take to get a small business loan? That's a question many small business owners ask. Whether you need funding to get a business up and running, or have been operating for years, there are several things that can improve your chances of getting approved for a loan.

Personal Credit Scores Do Matter

Don't make the mistake of thinking that you can have shoddy credit and still qualify for a small business loan. Lenders aren't in the business of handing out loans to anyone who walks through the door with a dream of entrepreneurship. They want to see a stable credit history and a solid business plan before approving any loans.

Business Plans and Loans

Lenders also factor in how much experience you have in your field and whether or not you have a viable business idea. Your business plan should include the following elements to show that you know your stuff.

—How much money do you need? Do your homework to come up with a realistic figure. Market research and estimates for equipment, leases, etc. can help you arrive at an amount.

—How do you plan to use the money? Don't just say you need it to buy supplies. Give a break down of exactly how you anticipate spending money borrowed. Account for the full amount you are asking to borrow.

—Do you have a plan for repaying a loan? Lenders want to know that if they lend to you, a workable plan is in place for you to have enough cash going forward to make payments. Expect to provide detailed financial statements as part of the process.

Was Your Loan Application Denied?

So what should you do if a bank denies a loan application? Consider borrowing from friends or relatives who have an interest in your company. Before doing this, however, take time to set up a formal loan agreement that outlines terms, interest rates, and a payment schedule. Also, avoid borrowing money this way if there is any chance that it can lead to hard feelings or even severed relationships if your business doesn't do well.

Another route to consider is applying for loans on social lending sites. Some people have had success borrowing money this way. The application process is less strict than with a commercial lender, but you still have to comply with formal loan agreements.

You can find more information on how to get a small business loan, as well as various lending programs, on the Small Business Administration Web site.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.