How Difficult is it To Obtain a Small Business Loan?

Since the big banks started destroying community lenders, and steadily lost interest in lending to small businesses, obtaining a small business loan for your budding business can be a difficult feat. To help you get a loan for your small business, below are three aspects to consider carefully when applying for your loan.

Which Type of Small Business Loan is Right for You?

The type of loan you get will depend on what you wish to use it for. For example, day-to-day financing should be covered by a line of credit, short-term cash flow loan or accounts receivable financing, while bigger plans, like expanding the business to a new area, would require a term loan. What loan you receive will also depend on both your business credit and your personal credit, so be sure you speak with a professional about your options.

Picking the Right Bank for Your Business

When choosing which bank you should go through to get a small business loan, consider a bank that knows your business history and is willing to work with you to get you the financing you need. It is important to remember that the first loan your business receives will probably be the most difficult to secure, because lenders generally prefer to finance businesses with a loan history.

Demonstrate How Your Business is a Good Investment

When you present yourself and your case to a lender, be sure to be transparent about the risks, as well as clear about what your business needs. Your background, resume, business plan and references should depict you as one that is responsible with your investments. Demonstrate that your business is a good investment for your bank of choice, and be sure you understand all the terms and conditions of the agreement. The most common areas of focus that banks use to measure default risk include:

• How long you have been in business
• Your credit history
• Your industry
• Your personal guarantee
• Your profitability
• Lawsuits, tax liability and liens
• Purpose of the loan
• Concentration of receivables
• Your business equity
• Your business model

Even though lending to small businesses has declined, obtaining a business loan does not have to be difficult. If your purpose is clear, and your business history is clean and in order, it is very likely that you will be able to find a lender willing to finance your plans.