Let's face it: it's hard to get financing if you don't have a good track record or a good credit score. Banks and other financial institutions tend to stay away from people who don't have a good credit history because they are a risk and it costs a lot to handle small accounts.
But there is a silver lining: banks and other financial institutions depend on business finance, no matter how big or small. If you can show them that you're a good place to put their money, you're in.
If you follow the tips below, banks and other institutions might not be able to say no to your application.
- Make sure you're well-prepared: You need to show the lenders that you have a good track record and that you will be able to pay back the loan. In my other article, "All About Small Business Funding," I talked about the paperwork that is needed for this.
If you are just starting out, you need at least three years of financial plans. Most of the time, a financial projection includes:
Estimates of how much money you make and how much you spend
- Report of cash flow
- Balance sheets for the future
- Business plan that covers everything
- Profiles of the people who will be in charge of the project(s) for which you need funding. These are the top managers.
- Estimates of working capital
- Precise loan utilisation detailing
Some of these documents need to be made by a professional accountant because they need to be done in a certain way.
In addition to the above documents, you would also need the following if you already have a business and want a small business loan to cover your working capital needs or plans to grow.
- Copies of the company's Balance Sheet, Income and Expense Statement, and Tax Returns
- Statements of personal finances and tax returns from the last three years
- Anticipate Questions: You need to be well-prepared and know enough about the lending process to know what kinds of questions you are likely to be asked.
Remember that lenders need to be sure that you can pay back the loan. Your business plan should also answer the questions your banker might have. These are the most-asked questions:
What do you need money for? Be specific! You can add a little more in case something goes wrong.
How long will it last? Be ready to explain in detail, with proof, how long it will take you to pay back the loan.
How do you plan to use the loan? Tell us if it's for capital expenses, working capital, growth, or to pay off old debts.
How will you pay it back? You can use your cash flow projections to show how long it will take to pay back the loan. Use your financial plans and business plan to show the banker that you will be able to pay back the loan.
- Say what's true and back it up. People who work in banks are very smart. If you make big claims that aren't backed up, they will see right through it, and you will look like someone who needs a loan badly. And bankers don't want anything to do with people like that. Better to be on the safe side with your projections, documents, numbers, and statements. You will seem like someone who is careful and organised.
- The first impression is the one that stays with you. Dress in a way that is appropriate for a job interview. All loan documents must be typed. Documents that are handwritten look unprofessional. This is a business deal, so handle it like one.
- Don't say you're sorry: Remember that banks look for good ways to put their money to work. Be sure that you are one of the best opportunities the bank has seen, and show the banker that you are sure of yourself. It's a fair deal for both sides. When a bank gives you a loan, they are not doing you a favour. You are also good for the banks. You have a business and can and will pay back the loan.
Last but not least, a word of warning: getting approved for a business loan is great, and it means you're almost there on the way to making your dreams come true. But make sure you read the small print. There are costs that aren't obvious with loans, like annual fees, bank fees, closing costs, commissions, and balloon payments. So, keep these riders in mind as you go through the loan process. Be sure of your goals, keep your mind on them, and work the way you planned. Your need for small business financing could be just what you need to make your big dream come true.
