What To Consider Before Applying For A Small Business Loan

you have the ultimate business idea, marketing and growth plans in place, now you just need the funding. Success in getting a business loan is not an easy task. There are some things that banks look at before loaning money. Knowing these criteria beforehand and having the answers in place will go along way in getting that loan. The first thing that bankers look at is the borrower’s ability to repay the loan. An established business has an advantage, as it has financial statements from past years that can show growth and profitability. A business that had shown low profits but has a marketing plan to expand into a new market also has the information to show the banker when applying for their small business loan. A start up business has the disadvantage of not having a record of accomplishment of profit, and has to overcome this with business planning, and a marketing strategy that shows systematically how the business intends to pay for the loan. The second factor that bankers look into when considering a small business loan is the individual’s credit history. The bank will pull the three major credit reports and will check scores for credit worthiness before issuing a small business loan. Checking over your credit reports for inaccuracies and errors will go along way in starting the process with the correct info. Doing what is needed to correct any past due accounts will also help. The third thing that the banks consider before issuing a loan is equity. Banks look for some form of equity in any business before lending money to it. Most of the times they expect the business owner to have invested at least one quarter of the total value themselves. An example of this 4:1 ratio is that to borrow $125,000 the owner needs to put $25,000 up themselves. The fourth thing banks look at before issuing a small business loan is the issue of collateral. They are more willing to invest in a business if there is a secondary way for them to get their money. A business with collateral that can be sold off

in the event of defaulting on a payment has an edge on the loan over another business with nothing for collateral. The fifth item that banks look at is experience. A bank will not be too excited to loan money to someone starting a business in a field they have no experience in. Either the person needs to gain the experience or plan to hire someone with that experience to run the business for the bank to be comfortable in loaning the money to the small business. Knowledge equals profit in the eyes of the bank. Following these steps do not guarantee a loan, but help in getting past the initial cut and having someone give your small business loan application deeper consideration.