Landing A Small-Business Loan

http://www.hispanicbic.org/

Landing A Small-Business Loan

There's an old adage that banks lend money only to those who don't really need it. Unfortunately, it seems to be true.

One of the leading causes of business failure is insufficient startup capital. But the sad reality is banks rarely loan money to those that most need help. Instead, loans are more likely to go to businesses that have been in operation for two years or more. An estimated 95% of entrepreneurs open businesses with capital from their own pockets and from relatives, friends, and others in the community.

If you're not discouraged by these facts, you need to be prepared and persistent if you want to land a business loan.

The Four Questions
The most important criterion banks use in determining whether to loan money is the ability to repay. Like other corporations, banks must answer to investors and stockholders. And unpaid loans make them look bad.

When a bank processes your loan application, it will typically ask some version of the following questions:

* How much money do you want?
* Is your business profitable enough, and does it have enough cash flow, to service the debt?
* Does your business have collateral to cover the loan?
* Is there a reasonable balance between debt and equity?

Banks also want and expect business owners to risk their own funds in the venture. At the very least, banks ask businesses to provide 25% of the needed capital. They simply won't take a risk when the business owner hasn't.

The types of businesses most likely to receive loans are those with a 30 to 36 month history of success in paying their bills, demonstrating their ability to meet financial obligations.

Befriend a Banker
Regardless of your status—as a startup or an established business—the first step in trying to obtain financing is to develop a rapport with the people who can help you. It makes sense to invite the target bank manager to open a file on your company. You can then send her quarterly or yearly profit and loss statements, and when your business becomes eligible for financing, the bank will already know your company.

You should also expect the bank to check, and double-check, your credit history. Looking at old debts and repayment histories is one of the only ways to determine your creditworthiness. Small business owners with a shaky credit history (either personal or professional) have little chance of landing a loan.

Have a Business Plan
Small businesses also need a solid business plan to inspire potential lenders' confidence. Generally, the plan covers business operations, marketing efforts, competition, management ability, and financial projections for three years, plus a cash flow projection and personal balance sheet demonstrating the worth of the business.

The plan also precisely identifies goals and serves as a resume for the owners and management team. There are numerous sources of information and advice on drafting business plans on the web and in the real world.


Landing A Small-Business Loan http://www.hispanicbic.org/ Landing A Small-Business Loan There's an old adage that banks lend money only to those who don't really need it. Unfortunately, it seems to be true. One of the leading causes of business failure is insufficient startup capital. But the sad reality is banks rarely loan money to those that most need help. Instead, loans are more likely to go to businesses that have been in operation for two years or more. An estimated 95% of entrepreneurs open businesses with capital from their own pockets and from relatives, friends, and others in the community. If you're not discouraged by these facts, you need to be prepared and persistent if you want to land a business loan. The Four Questions The most important criterion banks use in determining whether to loan money is the ability to repay. Like other corporations, banks must answer to investors and stockholders. And unpaid loans make them look bad. When a bank processes your loan application, it will typically ask some version of the following questions: * How much money do you want? * Is your business profitable enough, and does it have enough cash flow, to service the debt? * Does your business have collateral to cover the loan? * Is there a reasonable balance between debt and equity? Banks also want and expect business owners to risk their own funds in the venture. At the very least, banks ask businesses to provide 25% of the needed capital. They simply won't take a risk when the business owner hasn't. The types of businesses most likely to receive loans are those with a 30 to 36 month history of success in paying their bills, demonstrating their ability to meet financial obligations. Befriend a Banker Regardless of your status—as a startup or an established business—the first step in trying to obtain financing is to develop a rapport with the people who can help you. It makes sense to invite the target bank manager to open a file on your company. You can then send her quarterly or yearly profit and loss statements, and when your business becomes eligible for financing, the bank will already know your company. You should also expect the bank to check, and double-check, your credit history. Looking at old debts and repayment histories is one of the only ways to determine your creditworthiness. Small business owners with a shaky credit history (either personal or professional) have little chance of landing a loan. Have a Business Plan Small businesses also need a solid business plan to inspire potential lenders' confidence. Generally, the plan covers business operations, marketing efforts, competition, management ability, and financial projections for three years, plus a cash flow projection and personal balance sheet demonstrating the worth of the business. The plan also precisely identifies goals and serves as a resume for the owners and management team. There are numerous sources of information and advice on drafting business plans on the web and in the real world.
El Informe Newletter - AUG 2010