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How to Get a Small Business Loan
American entrepreneurship is at record levels, with a majority of Americans saying they want to start their own business. If you’re one of them, knowing how to get a small business loan is going to increase your chances of getting your business off the ground — or to the next level.
At a certain point, your business may need to grow beyond what your individual capital is able to provide. Your personal credit, however good, isn’t going to help you get a business loan — it’s totally unrelated.
So how do you get a small business loan?
Step 1: Know What Banks Are Looking For
You’re probably familiar with the criteria for mortgage lending, but do you know what banks are looking for when lending to small businesses?
Banks want to know that you have a real business plan that’s going to turn a profit. They’re going to investigate your personal history, as well as your business history and that of any partners you might have.
As with any other major loan, the bank will want you to have collateral. You need to have assets — both personal and business — that could be used to pay back the loan if you default. Sometimes the loan will have to be secured.
Step 2: Get Your Document Ducks in a Row
Documentation is important when securing any kind of loan — think of the tax returns and pay stubs you have to provide to secure a mortgage. Much like the criteria for qualification, the documentation is different when you’re looking for a small business loan. The paperwork you’re going to need for a small business loan includes:
- Personal credit history of all principals.
- Your business’ credit history.
- Financial statements from principals and the business itself.
- Projected financial statements from the same.
- Cash flow projections for, at a minimum, the upcoming year.
- A highly detailed business plan.
- Personal guaranties from each of the principals.
If anything, the paperwork you need to get a small business loan is even greater than the paperwork for a mortgage. Get all your ducks in a row or you’re not going to have a chance of getting the capital that you need.
Step 3: Find the Right Lender
A larger bank will be less likely to give you a small loan, and vice versa. And as with a mortgage, don’t rule out community banks and credit unions, which tend to be more open to individual exceptions.
The best thing you can do is go to a financial institution you have a history of working with, such as your existing bank or credit union. They’re going to know your business and have a sense of what your needs are and how to best accommodate them. What’s more, it’s going to make it easier to track down all your financial documentation.
You also need to know what kind of loan you need. Some businesses just need a quick, short-term infusion of cash. Others just need a line of credit, which isn’t much different from a business credit card. Still others might need a proper capital cash infusion to make a big investment.
Again, when you go to the financial institution you already work with, they can give you advice about what kind of financial services your business might need and benefit from.
Need more help? Go to the Small Business Administration. They exist just to help people like you secure the funding and resources you need to grow your business.