If there is one thing that seems to be a constant challenge for entrepreneurs, new and old alike, it is finding the money to fund their dream. There are various ways to do that of course, but friends and family, savings and bank loans tend to be the most popular methods.
Let’s talk about that last option for a moment. When it comes to getting a loan, I have good news for you:
Banks are interested in lending money; after all, that is their business.
Given that, it is your job to make it as easy as possible for a bank to say yes to you. You can do that by showing them that investing in your dream is a responsible, low-risk, smart decision.
How? Here are four ways to boost your chances of getting that loan:
1. Work on your fundamentals: It is your responsibility to show potential lenders that making a loan to your business is a sound financial decision. The first thing banks consider is your ability to repay the loan, so your business must show a profit.
You can boost your financial state by:
- Getting paid on time, getting your accounts receivables up to date and not letting accounts fall past due
- Running a lean ship, cutting overhead where possible and keeping an eye on labor costs
- Increasing your cash flow. Easier said than done you say? Maybe, but it is also true cash flow is king. There are the obvious examples, including raising prices and lowering overhead, but there are more subtle ways to improve cash flow:
- Ask suppliers for trade discounts or longer terms for quick payments or bulk orders
- Consider a cash reward credit card for purchasing office supplies and other daily expenses
- Minimize interest expense – don’t use high rate cards to support your business and pay down balances as quickly as possible
- Ask you banker about different options for payroll, merchant services, etc.
2. Have an updated business plan: Lenders want to see that you know where your business is and where it is headed. They want to know why your business is special. By serving as a blueprint for your company, your business plan tells them all that.
Additionally, a business plan is your strategy for how you will get from Point A to Point B.
Consider: Would a pilot ever fly from New York to Houston without a flight plan? No. A flight plan explains which direction to go, how much gas is needed, important landmarks to look for on the way, cautions to be aware of and so on.
Any lender will want to know that you have a vision for your company and a plan to bring it to fruition.
3. Have all of your paperwork handy: When applying for a business loan, aside from having a business plan, you will need to share a host of other business information, so you would be wise to have all your documents prepared before applying for a loan:
- Financial statements show that you have your financial house in order. Example documents include tax returns, internally prepared financial statements, CPS-prepared statements, personal financial statements, accounts receivable agings and Business Debt Schedule
- A list of applicable collateral
- Credit and financial information for the principals of the business
Again, your job is to show any lender that lending to you is a low-risk proposition and you do that by being prepared and professional. Speaking of which...
4. Be prepared: Know your financials cold. Be able to explain why you need the amount of money you are requesting, how you will use it, how you plan on paying it back and by when. By the same token, it should be clear that submitting pie-in-the-sky financial projections is a mistake. A bank wants to know that you know what you are doing. Offering puffed-up financials looks amateurish. If you need help, contact your CPA or tax preparer.
Similarly, don’t cover-up the risk. You need to be willing to share not only the good news, but also the bad and whatever plans you have for dealing with potential risks.
Finally, don’t forget that getting a loan is not just a numbers game; there is a significant human element involved. So it would behoove you to cultivate a relationship with a small business loan officer before ever applying for that loan.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss You can read more articles from Steve Strauss by clicking here.