How to Get a Small Business Loan
Obtain a copy of your credit report to ensure that it’s accurate., Get together some essential financial statements., Make a projection of future operations., Ask the financial institution which specific documents you'll need., Write your executive...
Step-by-Step Guide
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Step 1: Obtain a copy of your credit report to ensure that it’s accurate.
You may even want to obtain a copy from all major credit reporting companies for your country.
Most financial institutions review your credit report while they review your loan application. -
Step 2: Get together some essential financial statements.
In order to qualify for a small business loan, the lender needs to be reasonably certain you'll be able to pay it back.
Here are some of the essential financial documents you'll need to pay back:
Complete financial statements for the past 3 years.
These include, but are not necessarily limited to, balance sheets, income statements, and a reconciliation of net worth.Current financial statement, no more than 90 days old.
Term of debt schedule, as well as breakdown of accounts payable and accounts receivable (broken into monthly categories going back at least three months).
If you are just starting your business and need a loan, provide your balance sheet and income statement. , This projection of future operations should go as far as a year or until positive cash flow is achieved, whichever comes first.Type in "12 month profit and loss projection" into a reputable search engine for a pre-formatted spreadsheet that you'll be able to work with.
Try to follow industry standards when projecting your profits and losses.
If you don't follow industry standards, or you don't know what those standards are, try to make explicit any assumptions you are factoring into your projection.
This way, the lenders reading your application can better understand your methodology. , Also ask what additional information the lender requires for your loan proposal.
Different institutions have different requirements for small business loan applications.
The following is a short rundown of basic documents which are traditionally given to the lender. , The executive summary is your cover letter of sorts.
It should include information like your business background, a short description of your business, the amount you're requesting and what you intend to use it for, as well as how you intend to pay back the loan., Do you and your head managers have the business acumen to successfully convert a loan into profit? You'll need to keep your ship above water long enough to pay back the loan, and that's what the lenders want to know.
Looking at a group of resumes can help them do just that. , A business profile will give potential lenders greater insight into the particulars of what your business does and how it operates.
Although a business profile can include a wide rangeof information, you'll want to tailor this business profile to particulars that most interest potential lenders.
These include:
Business basics — the type of industry you're in, your location, a brief history of the business, as well as the product(s) or service(s) you offer.
Business financials — your annual sales, projected future growth, as well as current and/or likely future competition.
Business makeup — your total number of employees, the demographics and volume of customers, as well as pertinent information about suppliers. , Again, each institution will have its own requirements, but additional requirements may include a discussion of your business’ marketing techniques, market position, and the legal structure of your business. , This form is crucial for most SBA loans.
In it, you'll describe what type of loan you're after, how you intend to use the loan, as well as additional information. , If getting the loan is the most important step for you, seeing the loan repaid is the most important step for the potential lender.
Having the following documents will assure potential lenders that you're just as serious about repaying the loan as you are about getting the money in the first place.
Loan repayment statement.
Briefly describe how you intend to pay back the loan, paying special attention to repayment sources and deadlines.
Other financial documents you give the potential lender should support your repayment timetable.
SBA Form 4-a.
Distinct from your loan repayment statement, this form documents what you intend to use as collateral. (Almost all loans nowadays require collateral.) Be prepared to list at least two forms of repayment, such as existing revenue, secured loans, or material goods, in this form. , SBA Form 413 is a document request for financials from all owners, partners, and stockholders who have more than than 20% ownership stake in the business. , In the meeting, go over the documents with the consultant to ensure that they are all in order.
Though this is an optional step, it can be a good idea if you have not applied for a business loan before. ,, Know what potential lenders are looking for when they go over your application.
These five key areas, among others, will determine your likelihood of getting and SBA loan:
Sufficient equity invested into the business.
Owners who have equity in their business are more likely to pay back the loan.Sufficient cash to support your company's operation.
Cash inflows should be bigger than cash outflows so that the loan can be paid in a timely manner.Working capital.
Working capital is the difference between your liquid assets and your annual liabilities.Obviously, a higher working capital is preferred for SBA loans.
Collateral.
What will you be giving up if the loan cannot be repaid? Efficient resource management.
Resource management is the day-to-day management of goods and services, as well as the timeliness with which you pay debts and the frequency with which debts to you are collected., If a lender rejects your application and you are in the U.S., inquire whether it could offer you a loan under the Small Business Administration’s loan guaranty program.
Through this program, the SBA guarantees loans that financial institutions couldn’t otherwise afford to make.
If the financial institution can do this, give it permission to send your loan application to the SBA, which will review your application in full.
If you qualify, the SBA will contact the lender.
You will then receive a loan through your local financial institution.
If a lender rejects your application and you are located outside of the U.S., ask your financial institution what options are available for you. , Many banks are currently unwilling to lend to Main Street mom and pop businesses.
There just isn't enough financial incentive.
If you want to increase your chance of getting an SBA loan, pursue other paths, such as contacting a non-bank lender.
Non-bank lenders are similar to banks, except they traditionally service businesses, not individuals, and typically do not hold depository accounts.These lenders tend to charge higher interest based on the assumption of riskier loans. -
Step 3: Make a projection of future operations.
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Step 4: Ask the financial institution which specific documents you'll need.
-
Step 5: Write your executive summary
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Step 6: if you haven't already.
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Step 7: Provide the resumes of each business owner
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Step 8: as well as those of each member of management.
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Step 9: Assemble a business profile.
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Step 10: Write a loan proposal that includes the exact purpose of the loan and the exact amount you need to borrow.
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Step 11: Get your hands on
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Step 12: and fill out
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Step 13: the SBA Form 4.
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Step 14: Outline your loan repayment.
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Step 15: Fill out SBA Form 413.
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Step 16: Set up a meeting with a small business loans consultant at your financial institution and bring all the requested documents and information with you.
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Step 17: Submit the application and all supporting documents to the correct person or address.
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Step 18: Wait to hear from the financial institution.
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Step 19: If a loan isn't granted
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Step 20: inquire about the loan guarantee program.
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Step 21: Check out SBA-preferred non-bank lenders if you are unable to get an SBA loan from a bank or an SBA loan under a loan guaranty program.
Detailed Guide
You may even want to obtain a copy from all major credit reporting companies for your country.
Most financial institutions review your credit report while they review your loan application.
In order to qualify for a small business loan, the lender needs to be reasonably certain you'll be able to pay it back.
Here are some of the essential financial documents you'll need to pay back:
Complete financial statements for the past 3 years.
These include, but are not necessarily limited to, balance sheets, income statements, and a reconciliation of net worth.Current financial statement, no more than 90 days old.
Term of debt schedule, as well as breakdown of accounts payable and accounts receivable (broken into monthly categories going back at least three months).
If you are just starting your business and need a loan, provide your balance sheet and income statement. , This projection of future operations should go as far as a year or until positive cash flow is achieved, whichever comes first.Type in "12 month profit and loss projection" into a reputable search engine for a pre-formatted spreadsheet that you'll be able to work with.
Try to follow industry standards when projecting your profits and losses.
If you don't follow industry standards, or you don't know what those standards are, try to make explicit any assumptions you are factoring into your projection.
This way, the lenders reading your application can better understand your methodology. , Also ask what additional information the lender requires for your loan proposal.
Different institutions have different requirements for small business loan applications.
The following is a short rundown of basic documents which are traditionally given to the lender. , The executive summary is your cover letter of sorts.
It should include information like your business background, a short description of your business, the amount you're requesting and what you intend to use it for, as well as how you intend to pay back the loan., Do you and your head managers have the business acumen to successfully convert a loan into profit? You'll need to keep your ship above water long enough to pay back the loan, and that's what the lenders want to know.
Looking at a group of resumes can help them do just that. , A business profile will give potential lenders greater insight into the particulars of what your business does and how it operates.
Although a business profile can include a wide rangeof information, you'll want to tailor this business profile to particulars that most interest potential lenders.
These include:
Business basics — the type of industry you're in, your location, a brief history of the business, as well as the product(s) or service(s) you offer.
Business financials — your annual sales, projected future growth, as well as current and/or likely future competition.
Business makeup — your total number of employees, the demographics and volume of customers, as well as pertinent information about suppliers. , Again, each institution will have its own requirements, but additional requirements may include a discussion of your business’ marketing techniques, market position, and the legal structure of your business. , This form is crucial for most SBA loans.
In it, you'll describe what type of loan you're after, how you intend to use the loan, as well as additional information. , If getting the loan is the most important step for you, seeing the loan repaid is the most important step for the potential lender.
Having the following documents will assure potential lenders that you're just as serious about repaying the loan as you are about getting the money in the first place.
Loan repayment statement.
Briefly describe how you intend to pay back the loan, paying special attention to repayment sources and deadlines.
Other financial documents you give the potential lender should support your repayment timetable.
SBA Form 4-a.
Distinct from your loan repayment statement, this form documents what you intend to use as collateral. (Almost all loans nowadays require collateral.) Be prepared to list at least two forms of repayment, such as existing revenue, secured loans, or material goods, in this form. , SBA Form 413 is a document request for financials from all owners, partners, and stockholders who have more than than 20% ownership stake in the business. , In the meeting, go over the documents with the consultant to ensure that they are all in order.
Though this is an optional step, it can be a good idea if you have not applied for a business loan before. ,, Know what potential lenders are looking for when they go over your application.
These five key areas, among others, will determine your likelihood of getting and SBA loan:
Sufficient equity invested into the business.
Owners who have equity in their business are more likely to pay back the loan.Sufficient cash to support your company's operation.
Cash inflows should be bigger than cash outflows so that the loan can be paid in a timely manner.Working capital.
Working capital is the difference between your liquid assets and your annual liabilities.Obviously, a higher working capital is preferred for SBA loans.
Collateral.
What will you be giving up if the loan cannot be repaid? Efficient resource management.
Resource management is the day-to-day management of goods and services, as well as the timeliness with which you pay debts and the frequency with which debts to you are collected., If a lender rejects your application and you are in the U.S., inquire whether it could offer you a loan under the Small Business Administration’s loan guaranty program.
Through this program, the SBA guarantees loans that financial institutions couldn’t otherwise afford to make.
If the financial institution can do this, give it permission to send your loan application to the SBA, which will review your application in full.
If you qualify, the SBA will contact the lender.
You will then receive a loan through your local financial institution.
If a lender rejects your application and you are located outside of the U.S., ask your financial institution what options are available for you. , Many banks are currently unwilling to lend to Main Street mom and pop businesses.
There just isn't enough financial incentive.
If you want to increase your chance of getting an SBA loan, pursue other paths, such as contacting a non-bank lender.
Non-bank lenders are similar to banks, except they traditionally service businesses, not individuals, and typically do not hold depository accounts.These lenders tend to charge higher interest based on the assumption of riskier loans.
About the Author
Frances Parker
Enthusiastic about teaching hobbies techniques through clear, step-by-step guides.
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