You have a concept for a business and wrote a business plan that shows a clear path to profitability. You just need some cash to get started. If you have good credit and a sound plan, you may well be eligible for a small-business loan from a bank.
To qualify for a small-business loan, you’ll need to have all your bases covered. Here are the five basic steps for obtaining a small-business loan.
Small-Business Loans, Tip #1: Research Funders
There are many sources for small-business loans and you’ll need to do some research to find the best deal. Banks and credit unions provide access to SBA loans. If you already have a banking relationship, check there first. You also can look online and in newspapers to who is promoting small-business loans with low interest rates.
Government entities — including federal, state and city agencies — also have programs available to help with small businesses get started. These programs can include low-interest rates on loans as well as venture capital opportunities. Check with the U.S. Small Business Administration for more options.
Small-Business Loans, Tip #2: Gather Documentation
Make sure you have gathered all the necessary documentation before you approach a potential loan provider. You will need a current business plan, but additional paperwork may be necessary. If you’re up and running, this could include your business’s financial statements, an assessment of the business’s value and projections for future growth. Your proposed lender will let you know what documents you need.
Small-Business Loans, Tip #3: Submit an Application
After you’ve filled out necessary forms and gathered your documentation, your loan officer will submit your package to the bank underwriter. You may think you’re done, but it’s likely there will be follow-up questions. Be prepared to answer any and all questions about you or your business.
If you are approved, make sure you read and understand the loan terms and agreements. You may have to pay a higher interest rate or provide more collateral than you initially expected. If you are turned down, don’t take it personally. It may be that your business is riskier than the loans the bank is providing at this time. If you are told no, use the additional time to improve the credit profile for your business as well as look into alternative funders.
Small-Business Loans, Tip #4: Alternate Options
If you aren’t able to obtain a small-business loan from a traditional source, you can always look to your friends and family for funds. You can also look to angel investors or venture capitalists to back your plan. Online resources such as Kickstarter also connect businesses and financial backers for specific projects.
Small-Business Loans, Tip #5: Grant Options
Another funding option is to look into small-business grants, usually available through non-profit or government resources. Obtaining a grant for a small business may be difficult, but they can be found for certain fields and demographics. The Catalog of Federal Domestic Assistance provides information on government grants.
Whether you apply for a traditional small-business loan, look to alternative funding sources or apply for a grant, make sure you are well prepared by having a strong credit history, a sound plan and all your small-business information in order.
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