If you own a small business, you will be interested in How to Get A Small Business Loan. The process of applying for a small business loan can be tedious but we walk you through the process of getting a small business loan. If you need to apply for a small business loan, this page will tell you exactly how to get a small business loan. We will also address unsecured small business loans and assess your chances of being able to get an unsecured small business loan.
Applying For A Small Business Loan
Your chances of getting a small business loan are greatly increased through detailed preparation. Ideally, all small business owners could walk into the bank and say, “I would like $100,000 to grow my business” and the bank would respond, “Ok, here you go. Good luck!”
But it does not work this way. Why not? Well, it used to taken as fact that 50% of new businesses fail within the first year and that 95% fail within five years. Fortunately, these statistics are no longer the case. The more truthful fact now-a-days is that new businesses have a 50% chance of succeeding for 5 years or more.
While this is good news, consider the banks position. You are asking them to loan you a lot of money and they look at you and wonder: “Is this person among the 50% who will succeed or the 50% who will fail?” If the banks loaned money to every small business that requested it, they would lose money at least half the time…and in doing so they would go out of business.
So, before you make your small business loan request, you need to put yourself in the banker’s shoes. He or she needs to see solid proof that your business will succeed. And, if your business should not succeed, your banker wants to see proof that you can still repay the loan. In other words, the dreaded term–loan collateral.
Thus, you will need to do solid preparation before you apply for a small business loan. The very first step is having a solid business plan. If you do have one yet, do not proceed. There are many good programs available to assist you in creating a business plan. Most importantly, the bank wants to how your business is going to bring in the money to repay the loan. It is good to show the planned loan payoff in the financial projections section of your business plan.
You will also want to highlight your qualifications in this area of business. If you previously managed a donut shop but now intend to sell computer hard drives, you will probably not be a good risk. The bank wants to know that you have experience in your chosen field. Be prepared to show this in the form of previous work experience, academic experience, and enthusiasm for a successful outcome for your business. In other words, your passion and dedication for this new enterprise.
Small Business Loan Collateral
Now, we get to the dreaded words: Loan Collateral! As a small business owner, the fact that the banks want collateral can be very frustrating. You have probably worked in your chosen field for many years. Perhaps you already own a home, a car, and other “collateral” items that you have worked your whole life to obtain. Now, the bank is asking you to put all of that up as collateral. When we look at how to get a small business loan, this is the most unpleasant part.
As a small business owner, we often see this as a Catch-22: You are asking for a loan from the bank because you need money and then they are turning to you and asking you, “how much money do you have?” It’s a strange situation.
However, when asking for collateral, the banks are reminding you that you do, in fact, have the money to finance your business loan. You just don’t want to sell your house and your car to come up with the money. Thus, they are asking you to put skin in the game with them.
Putting up all of your assets as collateral is personally very difficult. You are essentially telling the bank that, if your new enterprise fails, they can come and take your house, your car, and everything else that you own. Statistics dictate that there is a 50% chance that this could happen. Where will you live? What about your family? Do you believe enough to put everything at risk? The bank will ask you these questions and you should ask them of yourselves as well.
However, what if you have no assets? No collateral? You may have a great idea but no home and not much in the way of collateral. In these cases, are unsecured business loans an option?
Unsecured Small Business Loans
Unsecured Small Business Loans really have two meanings.
Originally, the term unsecured small business loans meant a loan to a small, pre-established business that the bank did not need to secure with collateral because the business had established a solid credit foundation. As we discussed, a new business loan usually requires collateral. However, over time, as the business gets credit cards, repays existing loans, and proves itself viable, the business itself establishes credit-worthiness. Thus, the business itself can then get unsecured small business loans without the business owner having to provide collateral.
Now however, the term Unsecured Small Business Loans has taken on new meaning. It no longer takes an established business to get an unsecured small business loan. When applying for a small business loan, there are companies out there, such as America One Unsecured, who will do everything in their power to give you a loan. Many of the casual lending policies of these companies led to the great credit crunch of 2008/2009 as many people were unable to pay off their debts. Though these companies will do everything that they can to provide you with unsecured small business loans, they do follow more stringent lending practices today.
Getting A Small Business Loan: Helpful Videos
In these videos we see tips and pointers on how to get a small business loan. If you are interested in applying for a small business loan, you may find these videos helpful. Simply click the link to play the video in its own window.
In this video, Emily Gazner from the Entrepreneur Center discusses in a straightforward way how to obtain financing for your small business. In this two and half minute video, Emily gives you the tools to consider for those who want loans for small business and other start up capital matters.
In this video, FJ Kava, an MBA graduate out of San Francisco, discusses the steps that you can take to get a small business loan if you have bad credit. This is a short video and FJ takes you through the steps that might be able to get you that loan, including using non-traditional lenders in your area.
The Small Business Administration is the best place to start when you begin to apply for a small business loan. In this video, Gary Marshall from the SBA, tells you about the financing options available to start-up businesses through the SBA and other programs. The SBA is always a good place to go when applying for a small business loan…so why not listen to one of their operatives. This 2 minute video is certainly not a “sales-pitch” but does provide informative information.
You will enjoy this video on how to get money for your small business. Why? Because the video is produced by someone who has been through it. This video is 2 minutes and is presented by Clayton Christopher, the founder and CEO of Sweet Leaf Tea Company. He presents the options available for financing a new business.
This video is provided by Merchant Credit Advance. It is only a one-minute “pitchman” video and it talks about what Merchant Advance requires in order to get loans for small business.
How To Get A Small Business Loan: Summary
When you come up with an idea for a business, you have no doubt that it will succeed. Otherwise, why would you be doing it? However, almost every business requires money to begin.
In this article on how to get a small business loan, you may have noticed an inherent difficultly–to get money you often have to have money. Perhaps this is why we have the saying that “the rich get richer”.
When you apply for a small business loan, the banks will not only want to see an outstanding business idea and vast professional experience in your chosen field, they will want collateral. But what if you do not have any collateral?
Sometimes the best option is to go with outside, agreeable lenders who promise unsecured small business loans. However, these companies are now under a scrutinous umbrella too.
If you have no collateral, your best option (outside of friends and family) is this: Obtain loans for your small business while you still have your day job. You can always find a loan and get credit card advances if you have a solid, established income. Then, start your small business when you are certain that you can pay the monthly loan payments off until your business starts bringing in money.
For further information about how to get a small business loan, visit the U.S. Small Business Administration Website.
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