Getting financing for small business
Starting a small business is an exciting-but expensive-thing to do. There are many costs involved in starting a small business, from licensing to leasing a space and equipment to the day to day operating costs, such as payroll or advertising. Oftentimes, these expenses are too high for the average entrepreneur to be able to pay out of pocket.
The following are some things you need to know about getting financing for your small business:
Decide where to get your loan.
Your best place to start is with a bank you already have a good relationship with. If you have a business account set up already with a bank, apply for small business financing there first. Ask them what is required and get an application to fill out.
The United States Small Business Administration also offers loans to start-up companies, but they don't just hand the money out. As with any other loan, the SBA takes a variety of factors into account, including the business's credit history, collateral, business profile, cash flow projections, and other pertinent information. They will need to put together a portfolio that details the company's history and financial state, as well as that of the business owner or partners.
Get everything in order.
Some of the things you will need to provide when getting small business financing include:
- High credit score. A high credit score is essential for securing a small business loan. Lenders will pay special attention to your credit history to see what your chances are of defaulting on your loan. They also want to make sure you are not maxed out on your credit Check your credit report before you start that application process; sometimes, people assume their credit score is higher than it actually is, resulting in a surprise when they go to apply. Make sure you clear up any discrepancies, and be sure you pay your bills on time. 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.
- Have a business plan. A lender will want to see a business plan to make sure you have thought out your business and how you are going to run it. They want proof that your business idea is feasible. 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.
- Have collateral. You will also need collateral. 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.
- Get your documents together. Lenders 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
If you are not approved.
Small business loans are difficult to obtain, and in today's economy, stricter lending practices make it even more difficult to secure a small business loan. However, don't give up too soon-there are many other options for small business financing if you are unable to get a small business loan. You could borrow money from supportive family or friends, or work on improving your credit score until you can qualify. You could also get someone to cosign for you.