Cash- Strapped? Tips on Getting a Small Business Loan

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It takes money to make money, and there are countless reasons why your small business may need a loan, from expanding operations to purchasing new equipment. While in many ways, things are looking up economically, it can still be challenging to get the money you need to achieve your vision. But, lenders’ profits are based on loan interest, so they want to give out that money, provided the recipients present with a low credit risk. Here are some tips to put together a winning application.

Do Your Research on Lenders

This is not the time to walk into any bank and hand over an application. Your choice of lender can make all the difference in getting approved, and for what amount. You want to approach lenders who are familiar with your industry and customers. Generally speaking, a small business owner will fare better with local community banks rather than large, national ones. Bigger banks are much more likely to reject your application if you have not been profitable over the last three years, or if you do not have enough collateral to secure the loan. A smaller bank may not put as much weight on these hard numbers. If you think you may have trouble securing a standard loan, focus your search on lenders who participate in SBA-guaranteed loan programs; these government-backed programs guarantee up to 80 percent of the loan amount should you default. Because of the amount of paperwork and bureaucracy, it can take longer to get approved.

Tell Your Story

Because lenders have become more stringent in reviewing loan applications, it is important to provide detailed information about your business; you have to give them all the information they need to show that you are a low risk prospect who will not default on your loan. You have to explain all about your business and your customers. What services or goods do you provide? How do customers pay you and when? What do you pay vendors and what is your profit margin? Why do you want this loan? How have you managed credit in the past? What are your financial and sales trends? You can answer all of these important questions with a well-crafted business plan.

Consult with the Experts

Head over to your local Small Business Association office or, Small Business Development Center, for guidance on the loan application process. They can offer all sorts of helpful information, namely strategies that will work best for getting the money you need. You should also consult with your accountant, who can do a thorough analysis of your financials to create projections and offer advice on how much money you should be looking to borrow.

Loan Alternatives

If small business loans are not happening for you right now, there are some alternatives to consider that can get you some much-needed cash flow. Receivables factoring allows you to sell your invoices to financing companies for immediate cash—you can receive anywhere from 80 to 90 percent up front, with the rest being delivered when the client pays the bill, minus any service fees of course. Asset-based lending, where you are extended a line of credit , based on an analysis of receivables, inventory and fixed assets, may also be an option.

Kelli Cooper is a freelance writer who enjoys blogging about all things business.

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