Money for Small Business

How to Apply for a Small Business Loan

If you plan to apply for a small business loan, then you need to understand the three biggest factors that will affect your chances. You must have a business plan in place, you must understand the five c’s of credit, and you have to write a great loan proposal. Do these three things and you are well on your way to getting the funds you need for your business.

First things first, you really need to have a solid business plan in place before seeking funding for a small business. Your business plan needs to show a clear goal and the path you plan to take to accomplish that goal. Also, inside your business plan you need to have a marketing plan. The marketing plan will outline just how you plan on getting the customers that are vital to the success of you small business. Lastly, you should have a realistic budget in place. Many businesses limp along haphazardly trying to make it without a plan. Banks are not going to give you any money if you can not show them just how you are going to grow the money and be able to pay them back.

Before going in to talk to your banker you should understand what criteria they will use to judge whether or not to give you a loan. Bankers use the five c’s of credit to make loan determinations. The first is character. They want to determine what kind of person you are and your level of integrity. In a small town this is easy because generally everyone knows each other. In larger cities bankers will want business and personal references to determine your character. The second c is capacity. They will want to know your current cash flow and financial situation to determine your capacity to repay the loan. The third c is capital. Banks want to know your net worth so there are no surprises. The fourth c of credit is collateral. Banks are much more willing to issue a loan that is backed by some form of assets. Accounts receivable is generally the best method of securing a loan; however, banks do allow you to use equipment and supplies. The final c of credit is conditions. That would encompass your own current situation and the overall economy. Understanding the criteria a bank uses to determine your credit worthiness is a big advantage going into a loan process and the written proposal.

The loan proposal should be filled out honestly and completely. A banker does not like surprises popping up during a loan process. If a banker catches you lying on the proposal you can pretty much forget about the loan. Also, playing dumb and not filling out certain questions and sections casts doubt in the mind of the banker and the application will not be accepted anyways. Before returning the application, proofread it very carefully for information mistakes and grammatical errors.

After you apply for a small business loan, all you can do is be patient and wait. However, if you follow the three steps mentioned, have your solid business plan in place, understand the five c’s of credit, and fill out the proposal correctly, you have greatly increased your chances of getting the money you need.

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