Getting the Financing Your Business Needs

July 30, 2018, by John Norris

Borrowing money can be intimidating for business owners, particularly small business owners. The last thing any entrepreneurs want to be is beholden to the bank. That is a fate worse than debt, but sometimes it is an economic necessity. What can you do to minimize the bank’s hold over your business?

The best advice I can give starts by being prepared during the loan process. By that, I mean having all of the proverbial ducks in a row; having the I’s dotted and the T’s crossed, and leaving no stone unturned. The bank is going to want a lot of information about your business and finances, as well as why you want to borrow the money. It really is that simple.

In no uncertain terms, the better prepared you are when meeting with your banker, the smoother the process will be. The smoother the process, the better the structure and rate of your loan could likely be.

So, read the following as some good advice how to save money and time down the road.

Getting the Financing Your Business Needs

If the time is right to expand your small business, odds are that you’ll need financing to turn your dreams into reality. Whether you are looking to expand your physical footprint, add equipment or staffers, or boost your marketing efforts, you’ll need to convince lenders that you are a good candidate for a loan. Here are some things you can do to that could increase your chances of receiving the financing you need.

Choose the Lender Carefully

Not every bank understands the needs of small businesses. If you have an existing relationship with a bank that is business focused, then it may be a good place to start looking for financing. Ideally, the lender you ultimately choose will be one that is familiar with your business and your market. And don’t overlook the Small Business Administration. This federal agency offers a variety of small business loan programs.

Review Your Credit

A lender will review your personal and business credit histories to see how you’ve handled prior loans. It makes sense, then, that you should review your credit histories to ensure that they are accurate and current before you apply for a loan. If you identify any issues or errors, you’ll have time to clear them up.

Present Your Business Plan

Lenders want to know as much as possible about your business, its goals, its finances, and its personnel. A business plan provides that information, defining your goals and outlining the steps your business must take to reach those goals. It provides information on your experience and education as well as your key personnel. It describes your analysis of your market and your marketing plan. Importantly, it contains your financial projections — fact-based assumptions about revenue growth, operating costs, and cash flows. It is essentially a big-picture view of your business’s finances. And it plays a key role in obtaining financing.

If you do not have a business plan, consider creating one. If you do have a plan, review it to ensure it is up to date.

Add to Your Equity in the Business

Lenders want to see that you have some skin in the game. While requirements vary, lenders want to be sure that you have enough equity in your business. They may require that you add money to your business before they approve the loan.

Check Your Collateral

Prospective lenders want to be protected in case a loan can’t be repaid and typically insist that you provide some collateral to back the loan. Collateral assures the lender that you have a stake in the success of the business and confidence in your ability to pay back the loan. Collateral is simply an alternate repayment source that can be accessed in case your business doesn’t generate enough cash to make your loan payments. Examples of collateral are business assets, such as buildings, machinery, and inventory, or personal assets, such as a residence or other real property.

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