If you’re looking to get financing for your small business in today’s economy, you may have noticed it’s not easy. Despite a multibillion-dollar government bailout, banks are still feeling the effects of the subprime-lending crisis that peaked last year and nearly buried the industry. The result has been a steep decline in capital at many banks and U.S. government-sponsored enterprises, which has tightened credit around the world.
Not surprisingly, banks and other lenders have become far more stringent about whom they loan money to than they were in years past. As a potential borrower in this new and challenging environment, it’s important to bear certain things in mind — and take certain extra measures –to be successful when angling for a loan.
- Have a solid business plan. Now more than ever, lenders want to know that you have a viable business plan and have thought your future through from A to Z. Even then, it’s likely they’ll come back to you with comments, questions, and concerns. They want to be confident in the risk they’re taking on. So don’t expect your initial business plan to be your last. Be flexible and prepared to make changes at a lender’s request. And don’t take such requests personally. They’re actually pretty standard these days in an industry that’s been forced to clamp down after practically collapsing. If you’re patient and prepared not to give up, you’re much more likely to get what you want in the end.
- Don’t believe in angels. Any small business owner these days would love to think they’ll find some investor or business angel to help them take things to the next level. But the possibility has diminished significantly in the current economic climate. The reality is that there are other, more viable options — and they still include banks. So focus your energies there first.
- Shop around. Shopping around is key. Make a list of every lender you can think of. Then pay each one a visit to see what they’re willing to offer. It’s important to avoid temptation and not go with the first lender to hold out a handful of money. That way you’re more likely to get the deal that’s best for you in the long run.
- Be precise and realistic. It’s critical for you to be able to accurately and fully account for the amount of money you’re asking to borrow. There’s no point in asking for $100,000 when you only have definitive plans for $25,000. You wouldn’t loan money under those circumstances, and neither will banks or other lenders.
- Be patient. The reality is that your loan isn’t going to be approved in a week’s time. In the current climate it typically takes qualified borrowers between one and six months to get the money they need, so be sure to plan your business accordingly.
Susan Konig is a freelance writer in New York. She has been writing about finance for 15 years, for publications including Crain’s New York Business, The New York Times, and Registered Representative, a national publication for financial advisors.