It sometimes seems that getting a bank to provide a small business with a bank loan is like pulling teeth. Many just don’t like to take a risk on small businesses, particularly new ones. However, there are a few easy tips you can follow which may have them reviewing your loan request in a better light.
Start small. Borrowing small amounts helps build your track record. It shows that you are able to repay loans on time while also building your credit. That way, if and when you need a more significant loan, it may be easier to get.
Think cash, not collateral. Many businesses are tempted to put up an asset as collateral on a loan, but banks would rather see a positive cash flow. The greater your cushion, the more willing the bank is going to be to loan you the money. Generally, banks like to see five to six times the cash flow necessary to cover the interest payments on your loan. The difference between the interest you’ll pay each month and your cash flow is the bank’s cushion.
Packaging. Before you approach the bank, be sure your loan package is professional and detailed enough for the lender. Be sure to include such items as a one-page description of the size of the loan and what you plan to do with the money; 2 to 3 years of personal tax returns and business tax returns (if you have them); and a current personal and business balance sheet.
Raising money for your business can be frustrating, but don’t give up. You had the idea and the passion, now you need the perserverance. Sure, you may encounter a lot of “no’s” before you get a “yes”, but if you have a solid plan and a good business, chances are good that you’ll get that loan.