Securing a business finance loan for small businesses

Many people realize the costs that go into beginning a business, which can include such things as licensing and other fees required to make your business legal, costs for equipment and other start-up necessities, marketing and advertising costs, and many others.

These expenses can be difficult to cover if you don't have a consistent, positive cash flow yet or if you are just starting out but can't afford to cover all of them. If this is the case and you don't want to wait any longer to begin your business until you have saved up some money, you many want to opt for a loan when starting a business.

However, it is important that you are informed about what you need to do when you apply for a loan. Lenders and bankers are more likely to take you seriously if you are prepared and knowledgeable when it comes to starting a business and the loan process.

The following are some things banks will look at when you apply for a business loan. Knowing these things and making all the necessary preparations will help you to secure a business finance loan for your small business.

• Business plan. Most lenders will look at your business plan carefully. A business plan, if you don't have one already, will be key in securing any type of loan, whether short-term or start-up. A detailed business plan will be able to tell a lender what they can expect in terms of finance and feasibility within the next few years. In order to look legitimate and be taken seriously, have a well-written and well thought out business plan in place.
• Credit history. Lenders will pay special attention to your credit history first of all. This is similar to looking at the credit of someone who is applying for a home mortgage. Negatives or collections on your credit score may make it impossible for you to get a low interest loan, so make sure your credit history is up to par before going through the application process.
• Collateral. A lender will want to know what kind of collateral you can provide before lending you money, regardless of the interest rate. Established businesses usually won't have a problem with this, as they can offer property, accounts receivable, or different kinds of equipment when applying for a secured loan. If you are applying for an unsecured loan and your small business does not yet have anything to offer as collateral, collateral falls to the responsibility of the owners, in which case they may offer their homes, savings, or other things. Keep in mind that this is quite a risk to take, so make sure you are prepared to accept the ramifications should you be unable to pay back the loan.

In addition to the above main considerations, a lender will also look at the following, so be prepared:

• Financial statements for at least three years
• Tax returns for the past three years
• Incorporation papers, if your business has been incorporated
• A personal guarantee for short-term loans, a new business

Typically, credit reports and business plans are looked at more closely for businesses that are not yet established or who don't have any working capital.

In order to secure business finance for your small business, it is crucial that you are prepared and can show them you are serious about your business and your finances.