Advice for Small Business Financing

Businessman Sitting at His Desk

Dear M & M:

Do you have any practical advice on bettering my chances to get financing for a small business loan?

– Christian

Dear Christian:

Money is the lifeline of any business, so whether you’re starting a business or running an existing one, securing financing is a major factor, for any small businesses.  Here are some practical steps one can take when applying for a small business loan. The first thing to take in to account is what is the bank looking for? Different banks or lending institutions may have different standards, but in general, in order to consider your application for a small business loan, banks will require: The loan must be for a sound business purpose. For SBA-guaranteed loans, the business must be eligible based on size, use of loan proceeds and the nature of the business (no lending, speculating, passive investment, pyramid sales, gambling, etc.) Know and understand what types of loans the bank you are applying to is interested in doing. Some banks will do start-ups some won’t; some banks have had positive experiences with various franchises and are more willing to lend to a business looking for funding engaged in business with the same franchise, understanding what industries your bank is more likely to  lend to could be beneficial (example: some will lend to restaurants some won’t). Everyone who has ownership in the business should be of good character, have experience in the industry and have good personal and/or business credit history. A strong proposal must show the ability to pay back the loan- and include a strong collateral commitment (personal and business assets) if for some reason you default. Remember, the owners must have personal equity investment in the business or some skin in the game. If you aren’t willing to guarantee the loan, why should a bank? Different lenders may require more or fewer documents, but in general, you will need: Personal and business credit history – Personal and business financial statements for existing and startup businesses and as well as projected financial statements – A strong, detailed business plan (including personal information such as experience, bios, education, etc.)- Cash flow projections for at least a year, and personal guaranties from all principal owners of the business. Choose your lending institution carefully. Approach banks or lending institutions you have worked with – run your business accounts through or have recently loaned to a similar business. Talk to a lending officer before you start the process. Find out if they are interested in the loan and what they want you to submit. Be thorough; include everything they ask for in the loan package. Understand the business plan and all financial documents you are submitting. Be prepared to answer questions.  Be thorough; be truthful; get to the point. If you get turned down find out why. Fix the reason why you were turned down and approach the same lender or try someone else.

 -M&M

To ask your questions: Call the Small Business Development Center(SBDC) at Cochise College (520)-515-5478 or email schmittm@cochise.edu or contact the Sierra Vista Economic Development Foundation(EDF) at 520-458-6948 or email  hollism@svedf.org

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