A business loan is a way of securing extra capital for a start-up or even existing company that needs to grow and needs expenditure for purchasing fixed assets and employing new staff. There is a point in the life of every business where an injection of money has to be considered and the only viable option available for most companies is to take out a loan, either secured or in many instances unsecured.
When you’re a small business you need flexibility and control. Many offer small businesses a loan at the same low standard variable rate as their home loans with great features, such as unlimited redraw and no monthly service fees. So you can get back to business with confidence. There may be an arrangement fee, which with the current credit crunch is going to be a little higher than you'd normally expect. Similarly, with lending money drying up around the globe, most find that the lender will need to secure it against fixed assets such as your home.
Banks and other lending institutions cite risk factors as their main reason for turning down small business loan requests from startup businesses. Yet, you can still get a loan for your business by proper preparation. If you are an established business, getting a loan is much more easy, particularly if your existing account is constrantly in the black.
The most important task to obtain a small business loan is preparing a business plan. The business plan needs to show the lender that providing you with a small business loan is low-risk. Your business plan must answer the questions a lending institution would ask. These questions usually are:
How much money do you need?
If you are starting a business, this should be included at least in the start-up capital estimate. Accuracy is important, so request enough money to invest wisely.
What are you going to do with the money?
You will have to provide, in detail, the designated use of every dollar requested. A small business loan is often needed for: operations (new employees, marketing, etc.), assets (equipment, real estate, etc.), or to pay off business debts.
When will you repay the small business loan?
Explain in detail how this small business loan will serve as a stepping-stone for your business. You will need to convince the lender (with your financial statements and cash flow projections) that you are able to repay the loan through the expected long-term profitability of your business.
What will you do if you don't get the loan?
Let lenders know that rejection will not discourage you from starting or growing your business. You want to portray a confident and determined personality and you will try lender after lender until you receive the money you need to get your business moving.
As a small business owner, you will need to be confident and proud of your venture. Let lenders know you are in control and know the things that are best for your business. Understand that lending institutions need to make loans. But if you don't get one, don't get put off. Ask the lender why you didn't get the small business loan. Learn from the answer, move on, and try other lenders.
