How to get a Small Business Loan

By: EconomyWatch Content   Date: 14 December 2009

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‘How to get a Small Business Loan’ is a question most entrepreneurs have in mind, particularly when deciding about ways to find operating capital to start their business or for financing an expansion. The key to getting a small business loan is right preparation and convincing your lender that you are at good risk.

 

Steps on how to get a Small Business Loan

To secure a small business loan, you will need:

·        A well thought out business plan.

·        Cash flow forecasts.

·        The type of collateral or security.

·        The amount of money you are willing to put into your venture.

·        Specific expertise of the borrower in the chosen field.

·        A reliable competitor analysis report.

·        The borrower’s financial statements, credit rating report and tax returns of previous business, if it applies.

 

How to get a Small Business Loan: Sources

Listed below are some small business loan sources:

 

Banks: Banks are the first option when entrepreneurs are on the look out for a small business loan. However, banks have highly stringent guidelines about approving and providing business loans. Without good credit, there is very little chance of getting it done. Most banks also work with established businesses rather than with start-ups. If you have a track record of running a similar business, you have a good chance of getting a small business bank loan for your start-up. If you have a previous working relationship with the bank, it may extend credit to you even if you do not meet every requirement.

 

Small Business Administration (SBA): Another viable option is the Small Business Administration. The SBA business loans are not granted directly to the small business. Instead, they serve as guaranty to the private lenders. You still have to apply directly to a bank or any lending institution.

 

Finance Companies: Various finance companies are a good option as they tend to have lenient guidelines than banks. The downside is that they usually charge a higher interest rate. Opt for finance companies only if you do not get the loan from any bank.

 

Angel Investors: Seeking out angel investors can be daunting. However, if you have a solid business plan and can demonstrate your business acumen, these investors can be considered. Identify the required amount, the terms of repayment and the interest rate.

 

Remember, Angel investors generally look for ventures that promise a high ROI.


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