The loan underwriting process is becoming more demanding for small businesses, and it's essential for any start-up or those wishing to expand to be diligent in knowing all the ins and outs of getting a loan. Heading into 2011, there are some expert tips that can give any small company an advantage in the lending market. Here are the top six suggestions from industry professionals for getting access to the cash you need to fund your small business. (Incorporating these steps will help your business thrive in a competitive market. See In Small Business, Success Is Spelled With 5 "C"s.)
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1. Don't Quit Your Day Job
Helena Hauk, a business consultant who was recently named the SBA Financial Services Champion for her role in facilitating over $20 million in SBA loans in 2010, has states that "lenders are looking for a secondary source of repayment." She suggests that it may be wise for the borrower or spouse to keep their day job for covering their personal expenses, and that the lender may want to see that day-job income in addition to a separate source used to repay the business loan.
2. Offer Something of Value
The days of getting something for nothing are gone, making it necessary for loan applicants to have a significant source of collateral before they secure a loan. Helena emphasizes the importance of having it for those who are applying for working capital, inventory, or equipment. She also adds, "Be prepared to have a second lien taken on rental property, for example." Hefty loans will not likely be offered to those with few assets and no real property to secure against.
3. Keep Meticulous Records
The one-page loan application is almost unheard of in today's economy, causing borrowers to come to the table with piles of qualifying information before their loan will be considered. If you haven't made hard copies of those items most likely to be required, it's best to have them ready before you're asked. In addition to the business application, personal financials and tax returns are commonly requested, shares Helena.
4. Plan on Providing a Plan
Another useful tool for convincing a lender that their dollars are safe with you is a no-nonsense business plan. "Include all the details relevant to telling the story of how the business will operate, who will operate it and what experience the owners/managers have," Helena advises, "as well as relevant and conservative projections." This is one area where you don't want to skimp. (Learn cost-saving measures to strengthen your business even when the market is weak. Check out Build Your Small Business During Downswings.)
5. Character Counts
In addition to the numbers that will be crunched during the application process, a lender will also be making a note of the personal impression you make. "The lender decides subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company," reveals Denise Beeson, a small business loan officer and consultant. In addition to educational background, business and industry experience and quality of your references, the background and experience of your employees may also be considered.
6. Check and Recheck Your Credit
Even if you're certain that your credit history contains no surprises, take another moment before you turn in that final application and be certain that nothing new has cropped up. Since your credit is one of the most influential factors in approving a loan, there is really nothing more important to safeguard against errors or miscommunications. Your free credit history from any of the free reporting agencies should suffice. Just make sure that you allow enough time to repair damaging information before it can affect the final loan application.
The Bottom Line
When it comes to getting approved for a business loan, the devil really is in the details. If you have any questions as to whether you've left out important information that can help you get much-needed financing, turn to a small business professional for help. (Money in the bank and newfound free time make this grueling process worth the trouble. Refer to 7 Steps To Selling Your Small Business.)