The economy is recovering from the Great Recession, but it’s still volatile right now. As job security and corporate loyalty become a thing of the past, more and more people turn to entrepreneurship. Starting a business is exciting, but daunting. It takes a lot of money, and most people don’t have the experience to know where that money comes from, or how to get it. Here are three tips to help you secure a small business loan.
Know what you’re asking for and why.
The more specific you can be with your loan request, the better off you are. Don’t say that you need money “for your business.” That’s why everyone needs money. Let that bank know that you need money for three delivery trucks, and lay out the reasoning behind why three is the right number. Ask for the specific amount of money that you need to turn that old van into a food truck. Don’t imagine that you can get the money and then figure out how to spend it – that’s not how this works. The more specific, well-reasoned, and financially sound a plan is, the more likely you are to get your loan approved. If you are in a growth industry, or filling a specific, unmet market niche, or about to partner with a larger company, lay all of that on the table. You need to know what you’re doing, and you need to look like you know what you’re doing.
Know who to ask.
There are a lot of places that a business can find funding, but some are better than others. You’re more likely to get a loan at a local bank than a national one, for instance. Local banks are less swamped with requests, and typically have more leeway in how they can allocate funds. Another place to find money is the SBA. The Small Business Administration is a government agency that partners with banks to help small businesses. If your local bank has a partnership with the SBA, the government will insure a large part of the loan. That means the bank can feel more comfortable giving you the money. There is a downside. Since you’re working with the government, you have to deal with the extra paperwork and time that comes with bureaucracy. But if for some reason your business isn’t up to the standard for an SBA loan, they offer counseling and all kinds of other services to help get your business on solid footing. You might also consider non-bank lenders or microfinancing sites like Kickstarter or Indiegogo.
Have your house in order.
You need to demonstrate that you’re a reliable person. Most places that offer business loans want to see that your business has been profitable for three years. If your business is newer than that, or just trying to get off the ground, then you’ll need more than that. Make sure that your tax returns and credit history for the last three years are immaculate. Have a business plan, your resume, and all of your financial results and projections. Many organizations are in place to help small businesses, but even the lenders behind those programs are out to make money at the end of the day. You need to position yourself as a responsible person who can give them a return on their investment.