Increase Your Chances of Getting a Small Business Loan

May 7th 2016
For most small business owners, obtaining a loan is the most realistic way to start or grow their company. However, applying for a small business loan is no simple task - it's much more involved than filling out a few forms. Not only will you need a clear plan that demonstrates how you'll pay back the loan, but you'll also need to know how the loan you receive will rank you against other businesses. Before you start browsing small business loan interest rates online, you should collect some information on your own company. Not only will this help you avoid unpleasant surprises, but it will increase the chance that you'll get the financing your business needs.
Understand the Potential Value of Your Business
When you discuss a loan with a potential lender, the loan officer may ask about the value proposition of your business. A written value proposition is a few sentences or a few paragraphs that clearly states why your business appeals to consumers when compared to other similar businesses. Being able to clearly articulate why your business will succeed in the marketplace will make lenders more likely to offer you a loan. Since the heart of most business plans is the value proposition, be prepared to also orally summarize why your company will succeed.
Collect All of the Required Documentation
While the information lender's request may differ slightly between institutions, there are a few basic documents you will have to add to any loan application. Be prepared to offer a complete financial history of your business. This financial snapshot should include credit reports, previous years' tax returns, operating budgets and any other information necessary to provide an overall picture of the health of your business. You should be prepared to present a thorough business plan, and provide cash flow projections for at least one year. This business plan should offer a detailed explanation of how the loan funds will be spent but should also cover the overall health and direction of your business.
In addition to demonstrating the health of your business, expect to offer a peek into your personal finances as well. A good credit report and personal collateral will also help strengthen your application. Of course, you'll likely be asked to sign a personal guaranty if you are granted the loan. If you intend to use your small business loan to start your company, having good personal credit and a strong financial outlook will be essential.
Contact the Small Business Administration
Not only does the Small Business Administration guarantee loans for qualified applicants, but they also provide free counseling to anyone who needs a loan for their business. Once you've collected your loan documentation, call your local SBA and ask about available counseling sessions. Participating in an informational session will allow a seasoned professional to examine your documentation and point out any potential flaws or missing information. 
The SBA website is also an excellent place to look for information about writing a business plan and crafting your value proposition. While you're browsing on the SBA site, think about applying for an SBA loan. If you qualify, you're more likely to get more favorable terms from approved lenders because the SBA guarantees up to 85 percent of each loan. SBA loans also cap guaranty fees and interest rates. Even if you don't qualify for an SBA loan, local SBA offices can often help you find other loan opportunities and classes provided by professional organizations and nonprofits.
Where to Look for Lenders
National banks provide millions of dollars in small business loans each year, but they're only one option available to small business owners. In addition to investigating SBA-guaranteed loans, consider loans from credit unions, community banks, local nonprofits and professional organizations. Lenders with strong ties to your community will be more likely to loan money to a local business. The loan officers at local lenders are also more likely to understand the unique needs of your community, which will help them fairly evaluate your business plan.
Getting a loan for your small business requires a strong business plan and plenty of organization. Once you've assembled all of the required loan documentation, don't be afraid to solicit feedback on your business documents before submitting them to lenders. The SBA is a great first choice, but professional organizations and community nonprofits can also help. After you've scrutinized your application, look for local lenders who will invest in your chance to succeed.
  • Understand the value proposition of your business.
  • Have these five documents ready: business plan, cash flow projections, personal financial information, business financial information and a personal guaranty.
  • Explore the resources available from the SBA.
  • Look locally when shopping for a lender.

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