Small Business Loan Strategies

Because of the turbulence in both domestic and foreign financial markets, lenders are being even more judicious as to whom they issue loans. Unfortunately, this extends to the small business environment. As such, you need to work harder and be more cognizant of the nuances financial institutions require in a potential applicant.
 
Strategy One: Display a Capability to Make Good on the Financing
 
Plain and simple: lenders want to know if your business is able to repay the money they borrow. Your capability to repay will be based on such critical elements as your company’s fixed and variable costs … how positive your cash flow … your general costs of doing business … and your sales and projected revenue. To prove to lenders that you are financial stable and secure to take on a loan, your business’ financial statement must be in order. This should include payments records, collateral to guarantee the loan, and comprehensive tax records.
 
Many business financial experts feel that the balance sheet is an especially important financial document. This is the equity to debt ratio … which translates into the amount of money you have invested in the company compared to the amount of money your enterprise currently owes. Before contacting financial institutions for cash – be sure to carefully troubleshoot your financial statements so that no red flags will surface during the approval procedure.
 
Especially important is your credit score (FICO). As a basic rule of thumb, your FICO score should be in the 700s or above. FICO scores below 640 may mandate an immediate rejection.
 
Strategy Two: Have a Sound Business Action Plan
 
Why would any lender want to invest in any business concern – large or small – if they don’t have a solid   business plan? Obviously, you can’t reach your goals without a viable course of action to achieve your objective. In fact, your goals should be the first element of your written business plan … along with a detailed examination of your company’s many elements.
 
You also need to logically outline how you are going to go about appropriating the money given to your company. Here you will have to establish the dollar amount you need to borrow … along with the timeframe when you plan to repay in full. Put yourself in the shoes of the lender, this is essential info they need to know. The more solid your reasoning and the more realistic your numbers -- the better the chance of achieving approval.
 
Strategy Three: Target the “Right” Lender for the “Right” Kind of Loan
 
There are a multitude of active, viable lenders who can provide small business financing. The savvy borrower will research rates (to get the lowest) and services available to benefit small and burgeoning companies. Without question, you will want to check out the Small Business Administration (sba.com) for their offerings and lending programs, especially in the area of long-term loans.  Ultimately, the financial institution, bank or lender you decide to go with will be a function of the particular needs of your business and its unique requirements.
 
Consideration also needs to be given to the type of loan. In the business environment, there are basically two kinds of loans: short term and long-term. Short-terms loans traditionally mature within a year. And they are used for short-term needs such as accounts receivable, purchasing inventory, payroll, and operational funds. Short-term loans are for companies who need to borrow smaller, more manageable amounts. On the other hand, long- term loans are used for major business purchases such as new equipment, expanding a building, adopting new technology, etc.
 
A Few Words about Repayment & Collateral …
 
Now, more than ever, business loan providers are extremely concerned with repayment. They are especially interested in cash flow and the collateral behind a secured loan. Financial institutions evaluate loan applicants based on their assets that have a resell value equal to or more than the face value of the loan. Another avenue to guarantee repayment is the personal guarantee. Here business owners put up their own personal assets (including real assets) to guarantee loan repayment.