Small Business Loan

How to apply for a small business loan

Applying for a small business loan is not simply a matter of “ask and you shall receive” - the truth is, many entrepreneurs do ask but few actually receive. The reason so many people get turned down isn’t that they have a bad idea for a business (in fact, many have brilliant ideas). Rather, the reason is that these people fail to convince lenders that they have a solid plan for how to use the loan to grow their business.

Here’s a list of 10 things you can do before you apply for a small business loan, to help ensure that you aren’t turned down:

• Figure out how much you need. Crunch the numbers and determine just how much money you need to get your small business off the ground. It’s very important that you not borrow more money than you need. If you do, you’ll wind up paying more interest than you need to. Since many small businesses just barely scrape by for the first few years, every dollar you can save is vital.
• Have a solid business proposal. Lenders will want to know what you plan to do with their money, so you better be ready to explain to them just how you plan to use it. Your business plan should be between 5 and 20 pages. Include accurate financial projections.
• Collect the proper documents. If you’re a startup or a business that’s been running for less than two years, make sure you can compile three years of personal tax returns, including all schedules. You’ll also need one year of monthly business projections, as well as two years of annual business projections. In addition to these documents, you should obtain your personal credit reports from three credit bureaus. You’ll need these same forms for anyone else who owns 20 percent or more of the business.
• Determine what you have for collateral. What will you use to secure the loan? Collateral can include equity in the business, borrowed funds and available cash.
• Talk to a professional. It’s great that you have an entrepreneurial spirit, but you can’t do everything yourself. Sometimes, you have to defer to the experts. Make an appointment to speak with a financial expert. Get his or her advice before you make any formal commitments to borrow money.
• Shop around. Don’t take out a loan at the first place that agrees to lend you money. Look around and find out the terms that are being offered by different lenders, then make a smart decision for your company.