Difference between revisions of "Get a Small Business Loan"
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#Obtain a copy of your credit report to ensure that it’s accurate. You may even want to obtain a copy from all major credit reporting companies for your country. Most financial institutions review your credit report while they review your loan application. | #Obtain a copy of your credit report to ensure that it’s accurate. You may even want to obtain a copy from all major credit reporting companies for your country. Most financial institutions review your credit report while they review your loan application. | ||
#Get together some essential financial statements. In order to qualify for a small business loan, the lender needs to be reasonably certain you'll be able to pay it back. Here are some of the essential financial documents you'll need to pay back: | #Get together some essential financial statements. In order to qualify for a small business loan, the lender needs to be reasonably certain you'll be able to pay it back. Here are some of the essential financial documents you'll need to pay back: | ||
| − | #*Complete [[Write a Financial Statement|financial statements]] for the past 3 years. These include, but are not necessarily limited to, balance sheets, income statements, and a reconciliation of net worth.<ref>http://www.sba.gov/content/how-apply-sba-loan</ref> | + | #*Complete [[Write a Financial Statement|financial statements]] for the past 3 years. These include, but are not necessarily limited to, balance sheets, income statements, and a reconciliation of net worth.<ref name="rf1">http://www.sba.gov/content/how-apply-sba-loan</ref> |
#*Current financial statement, no more than 90 days old. | #*Current financial statement, no more than 90 days old. | ||
#*Term of debt schedule, as well as breakdown of accounts payable and accounts receivable (broken into monthly categories going back at least three months). | #*Term of debt schedule, as well as breakdown of accounts payable and accounts receivable (broken into monthly categories going back at least three months). | ||
#*If you are just starting your business and need a loan, provide your [[Write a Balance Sheet|balance sheet]] and [[Write an Income Statement|income statement]]. | #*If you are just starting your business and need a loan, provide your [[Write a Balance Sheet|balance sheet]] and [[Write an Income Statement|income statement]]. | ||
| − | #Make a projection of future operations. This projection of future operations should go as far as a year or until positive cash flow is achieved, whichever comes first.<ref | + | #Make a projection of future operations. This projection of future operations should go as far as a year or until positive cash flow is achieved, whichever comes first.<ref name="rf1" /> Type in "12 month profit and loss projection" into a reputable search engine for a pre-formatted spreadsheet that you'll be able to work with. |
#*Try to follow industry standards when projecting your profits and losses. If you don't follow industry standards, or you don't know what those standards are, try to make explicit any assumptions you are factoring into your projection. This way, the lenders reading your application can better understand your methodology. | #*Try to follow industry standards when projecting your profits and losses. If you don't follow industry standards, or you don't know what those standards are, try to make explicit any assumptions you are factoring into your projection. This way, the lenders reading your application can better understand your methodology. | ||
=== Completing the Application=== | === Completing the Application=== | ||
#Ask the financial institution which specific documents you'll need. Also ask what additional information the lender requires for your loan proposal. Different institutions have different requirements for small business loan applications. The following is a short rundown of basic documents which are traditionally given to the lender. | #Ask the financial institution which specific documents you'll need. Also ask what additional information the lender requires for your loan proposal. Different institutions have different requirements for small business loan applications. The following is a short rundown of basic documents which are traditionally given to the lender. | ||
| − | #[[Write an Executive Summary|Write your executive summary]], if you haven't already. The executive summary is your cover letter of sorts. It should include information like your business background, a short description of your business, the amount you're requesting and what you intend to use it for, as well as how you intend to pay back the loan.<ref>http://www.inc.com/guides/2010/09/how-to-write-an-executive-summary.html/1</ref><ref | + | #[[Write an Executive Summary|Write your executive summary]], if you haven't already. The executive summary is your cover letter of sorts. It should include information like your business background, a short description of your business, the amount you're requesting and what you intend to use it for, as well as how you intend to pay back the loan.<ref name="rf2">http://www.inc.com/guides/2010/09/how-to-write-an-executive-summary.html/1</ref><ref name="rf1" /> |
#Provide the [[Make a Resume|resumes]] of each business owner, as well as those of each member of management. Do you and your head managers have the business acumen to successfully convert a loan into profit? You'll need to keep your ship above water long enough to pay back the loan, and that's what the lenders want to know. Looking at a group of resumes can help them do just that. | #Provide the [[Make a Resume|resumes]] of each business owner, as well as those of each member of management. Do you and your head managers have the business acumen to successfully convert a loan into profit? You'll need to keep your ship above water long enough to pay back the loan, and that's what the lenders want to know. Looking at a group of resumes can help them do just that. | ||
| − | #[[Write a Business Profile|Assemble a business profile]]. A business profile will give potential lenders greater insight into the particulars of what your business does and how it operates. Although a business profile can include a wide range<ref>http://www.dob.nt.gov.au/business/starting-business/business-guides/fast-facts/Pages/business-profile.aspx</ref> of information, you'll want to tailor this business profile to particulars that most interest potential lenders. These include: | + | #[[Write a Business Profile|Assemble a business profile]]. A business profile will give potential lenders greater insight into the particulars of what your business does and how it operates. Although a business profile can include a wide range<ref name="rf3">http://www.dob.nt.gov.au/business/starting-business/business-guides/fast-facts/Pages/business-profile.aspx</ref> of information, you'll want to tailor this business profile to particulars that most interest potential lenders. These include: |
#*Business basics — the type of industry you're in, your location, a brief history of the business, as well as the product(s) or service(s) you offer. | #*Business basics — the type of industry you're in, your location, a brief history of the business, as well as the product(s) or service(s) you offer. | ||
#*Business financials — your annual sales, projected future growth, as well as current and/or likely future competition. | #*Business financials — your annual sales, projected future growth, as well as current and/or likely future competition. | ||
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#Submit the application and all supporting documents to the correct person or address. | #Submit the application and all supporting documents to the correct person or address. | ||
#Wait to hear from the financial institution. Know what potential lenders are looking for when they go over your application. These five key areas, among others, will determine your likelihood of getting and SBA loan: | #Wait to hear from the financial institution. Know what potential lenders are looking for when they go over your application. These five key areas, among others, will determine your likelihood of getting and SBA loan: | ||
| − | #*Sufficient equity invested into the business. Owners who have equity in their business are more likely to pay back the loan.<ref>http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/application-process/credit-factors</ref> | + | #*Sufficient equity invested into the business. Owners who have equity in their business are more likely to pay back the loan.<ref name="rf4">http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/application-process/credit-factors</ref> |
| − | #*Sufficient cash to support your company's operation. Cash inflows should be bigger than cash outflows so that the loan can be paid in a timely manner.<ref>http://www.sba.gov/content/earnings-requirements</ref> | + | #*Sufficient cash to support your company's operation. Cash inflows should be bigger than cash outflows so that the loan can be paid in a timely manner.<ref name="rf5">http://www.sba.gov/content/earnings-requirements</ref> |
| − | #*Working capital. Working capital is the difference between your liquid assets and your annual liabilities.<ref>http://www.sba.gov/content/working-capital</ref> Obviously, a higher working capital is preferred for SBA loans. | + | #*Working capital. Working capital is the difference between your liquid assets and your annual liabilities.<ref name="rf6">http://www.sba.gov/content/working-capital</ref> Obviously, a higher working capital is preferred for SBA loans. |
#*Collateral. What will you be giving up if the loan cannot be repaid? | #*Collateral. What will you be giving up if the loan cannot be repaid? | ||
| − | #*Efficient resource management. Resource management is the day-to-day management of goods and services, as well as the timeliness with which you pay debts and the frequency with which debts to you are collected.<ref>http://www.sba.gov/content/resource-management</ref> | + | #*Efficient resource management. Resource management is the day-to-day management of goods and services, as well as the timeliness with which you pay debts and the frequency with which debts to you are collected.<ref name="rf7">http://www.sba.gov/content/resource-management</ref> |
#If a loan isn't granted, inquire about the loan guarantee program. If a lender rejects your application and you are in the U.S., inquire whether it could offer you a loan under the Small Business Administration’s loan guaranty program. Through this program, the SBA guarantees loans that financial institutions couldn’t otherwise afford to make. If the financial institution can do this, give it permission to send your loan application to the SBA, which will review your application in full. If you qualify, the SBA will contact the lender. You will then receive a loan through your local financial institution. | #If a loan isn't granted, inquire about the loan guarantee program. If a lender rejects your application and you are in the U.S., inquire whether it could offer you a loan under the Small Business Administration’s loan guaranty program. Through this program, the SBA guarantees loans that financial institutions couldn’t otherwise afford to make. If the financial institution can do this, give it permission to send your loan application to the SBA, which will review your application in full. If you qualify, the SBA will contact the lender. You will then receive a loan through your local financial institution. | ||
#*If a lender rejects your application and you are located outside of the U.S., ask your financial institution what options are available for you. | #*If a lender rejects your application and you are located outside of the U.S., ask your financial institution what options are available for you. | ||
| − | #Check out SBA-preferred non-bank lenders if you are unable to get an SBA loan from a bank or an SBA loan under a loan guaranty program. Many banks are currently unwilling to lend to Main Street mom and pop businesses. There just isn't enough financial incentive. If you want to increase your chance of getting an SBA loan, pursue other paths, such as contacting a non-bank lender. Non-bank lenders are similar to banks, except they traditionally service businesses, not individuals, and typically do not hold depository accounts.<ref>http://www.sba.gov/community/blogs/community-blogs/small-business-cents/financing-alternative-non-bank-lenders</ref> These lenders tend to charge higher interest based on the assumption of riskier loans. | + | #Check out SBA-preferred non-bank lenders if you are unable to get an SBA loan from a bank or an SBA loan under a loan guaranty program. Many banks are currently unwilling to lend to Main Street mom and pop businesses. There just isn't enough financial incentive. If you want to increase your chance of getting an SBA loan, pursue other paths, such as contacting a non-bank lender. Non-bank lenders are similar to banks, except they traditionally service businesses, not individuals, and typically do not hold depository accounts.<ref name="rf8">http://www.sba.gov/community/blogs/community-blogs/small-business-cents/financing-alternative-non-bank-lenders</ref> These lenders tend to charge higher interest based on the assumption of riskier loans. |
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