Small Business Loans
Every small business requires a start-up investment. The type of financial support needed to start a small business will vary depending on the type of work the business will be doing, the number of employees it has, and the kind of facility or equipment that it requires. For most small business owners, a loan is a sound financial tool that will support operating expenses for the company's first few months or years.
Before applying for a small business loan, it's important to make sure that you — and your business — are ready. As a small business owner, you want to make a good impression at the bank by coming prepared. Here, we've assembled some basic information about small business loans and included a few ideas to consider before heading to the bank.
How Startup Lending Works
Many small businesses have been owner-funded from the very start. Because they begin with a certain amount of capital, they don't have to borrow money to get off the ground. But for most small businesses, a bank loan is the best choice for these funds and often the most difficult part of starting up.
Banks and other lending institutions are generally pretty picky when it comes to granting small business loans. As with any line of credit, the bank wants to see evidence that a return can be anticipated on its investment. A brand new small business lacks the experience to prove its goal will be reached. So, lenders will look elsewhere, like at your personal financial activity and credit report, for proof that your business is sound and that its investment is safe.
If you have less-than-perfect personal credit, be sure to explore all your options on how to improve your standing and acquire the money you need. Using your small business plan, consider if another means of financing is better for your small business goals. If it looks like shopping for a bank loan is still the way to go, make sure you're well prepared before meeting with your loan officer.
Preparing to Apply
Banks will be looking for proof of your credibility and the risk involved with lending money to your seedling business. Come prepared to show your lender your very best — your relationship with them can be key to future financial success. Here are a few materials to make sure you bring to the table.
- Good Personal Credit. If you're applying at the same bank that holds your personal accounts, expect to have your banking history examined for bad checks, overdraft fees, late payments, and other activity that might increase your risk as a borrower. If you know your credit or your banking history is less than ideal, you may want to look elsewhere for funding.
- Strong Small Business Plan. Lenders want to know exactly how you plan to use the money, what returns you anticipate, how you plan to repay the loan, and how serious you are about your potential financial agreement. This can not only be explained, but also demonstrated, with a detailed small business plan. The better your business plan, the better the lender will understand your ideas, and the better your very first business relationship with them will be.
- Clear Business Ideas. No matter how strong your business plan, your lender may want to hear your ideas straight from you. Come prepared to clearly and powerfully endorse your own business ideas and strategies. To the lender you are your small business's one and only advocate — prove to them your idea is worth their investment.
Once you've brought your best to the table and sold your small business to your startup lender, you still may not get the funding you want. But don't let it discourage you — use it as an opportunity to become a more market-savvy business owner. If you'd like more information about starting your small business, check out the other pages in our Small Business section.
