Top Tips for Landing Small Business Loans
One of the most difficult aspects of getting a new business off the ground is getting the money to make it happen. How do you get a business loan for a new business? Sure, you have a great idea and you’re confident it will succeed, but unless you’re independently wealthy, you’ll need to convince others with the capital to get your business off the ground that your idea is as great as you say it is. So, how can you improve your chances of acquiring funding for your big idea?
1. Make a Good Business Plan
This is undoubtedly one of the most important factors in starting a successful business, and the process of drafting a solid business plan is nearly as important as the final product.
Show your investors that you’re being realistic about your startup’s prospects…
For one thing, seeing everything in black and white will help you solidify your ideas and develop realistic expectations about your place in the market. Your business plan should define who your target customers are, your brand’s image, and how your business will differentiate itself among its competitors. You should also have a clear and realistic plan of action for getting your business off the ground.
On the money side of things, your business plan will be a key component in convincing your investors that you’re the horse they want to bet on. They will want to see strong evidence that your business has the potential for profits fairly quickly, and plenty of opportunity for long-term growth. You’ll also have to show that you’re personally invested in your business, not only with your time and energy, but your money as well.
In addition, you should put together financial projections that address a variety of scenarios, from best to worst. This will show your investors that you’re being realistic about your startup’s prospects.
2. Manage Your Business Credit Responsibly
This should go without saying, but plenty of small business owners still get themselves into real trouble with this one. Just because you have secured capital to get your company up and running initially, doesn’t mean you won’t ever need financing again. You may need extra money for expansion, promotion, equipment purchases, R&D, or staying afloat through fluctuations in business… the list goes on and on.
Many of the best practices you should follow to keep your business credit in shape are the same as the ones you use for your personal credit. Pay your debts on time (early, if you can), monitor your business credit file, keep detailed records, keep your balances below 30%, and don’t take on more debt than your business has the ability to repay in a timely manner.
There are also some guidelines specific to business credit. For example, you should avoid taking on debt in your own name to finance your business, if you can. While it has become a fairly common practice for small business owners to do this, and sometimes there are few alternatives, putting business debt under your personal credit has several disadvantages.
First, you’re missing out on an opportunity to establish a business credit file. Second, you’re putting your personal holdings on the line, should your business fail. In addition, failure to keep your business and personal finances separate can cause serious tax complications.
3. Consider Alternate Means of Financing
Getting a small business loan from the bank is not your only option, although it remains a great one – banks, after all, are in the business of lending money. That said, if your business isn’t particularly capital-intensive, or relies on a very specific niche market whose viability is a difficult sell to the bank, perhaps you should look into taking on venture capital investors, or even crowdfunding. You might also consider the benefits of SBA loans. These loans are guaranteed by the US Small Business Administration, and are often easier to qualify for than traditional business loans.
Finally, be sure to check out Steve's book Get Your Business Funded: Creative Ways to Get The Money You Need.