While signs of an economic recovery are still somewhat hard to detect on Main Street, there are some indications that credit is poised to trickle out to small businesses again. The newly published Intuit Future of Small Business Report – Credit Outlook reports that “… credit remains available to fuel small business dreams, if you know where to look – and how to qualify”.
Intuit’s research is based on interviews with small business owners seeking credit and the banks and lenders who can provide it. And, while they note that credit remains tight, they suggest that businesses “…that can demonstrate the ability to manage assets and cash flow will find credit is still available, although not unlimited.”
Combine this research with the steady flow of new and revised loan programs that have come out of the Small Business Administration (SBA) since the passing of the American Recovery and Reinvestment Act (ARRA), and it could just be the right time for many small business owners to tread (albeit tentatively) back into the loan market once more.
But knowing how to position yourself as an attractive and viable investment for banks and lenders is going to require a lot more planning and preparation than was required in the days when banks were a lot more “credit happy”.
If you are seeking a business loan, whether a traditional loan or one backed by the SBA, here are some tips to help you position yourself as a fiscally responsible candidate.
1. Research Potential Lending Institutions
To stand the best chance of succeeding with your loan application it will help to approach a bank that is familiar with your industry and target market. Your local Chamber of Commerce, Small Business Development Center, or other business networking group should be able to point you in the right direction. You may also benefit from approaching smaller community banks, as opposed to the larger national banks. They can often put a face to the application process, and, since they operate in the same locality, there is a good chance that they will have prior knowledge of your business.
You should also focus on banks that participate in SBA-guaranteed loan programs – the ARRA has enabled the SBA to increase its guarantees to lenders, while easing up the fees that business owners face (more here).
SBA loans – as well as the recently announced ARC Loan Program and changes to the 504 Loan Program – cover a wide variety of business needs including start-up costs, business expansion, supplies and machinery.
More established businesses can benefit from traditional loans not backed by the SBA, but do consider that the government, through the ARRA, is offering up significant risk-reduction incentives for banks to opt for SBA-backed loans. So you may find that your bank steers you in that direction regardless.
2. Gather all your Documentation
Before you start applying for loans, you should gather some basic documentation about you and your business – such as a demonstrably good income record. This Business Loan Checklist from Business.gov includes some of the typical items you will need for any small business loan application.
3. Prepare Your Loan Application
Most banking institutions will have separate loan application processes, but if you are pursuing an application for an SBA loan, there are specific types of information that you’ll need to provide. And remember, you must work through your bank for an SBA loan. The SBA itself doesn’t provide direct loans; your lender will submit your loan package to the SBA for approval.
This SBA Loan Application Checklist from the government will help you understand what the loan application process entails and what forms you will need. You can also read this post – How to Prepare a Loan Proposal – for quick tips and advice.
4. Prepare and be Polished at Your Loan Application Interview
Whatever your motives for needing a business loan, present a positive and professional demeanor at the interview. Be prepared for a variety of questions and make sure you can back up all your loan application claims with facts.
You are selling yourself, your confidence in your business plan, as well as your ability to make good on your loan. Communicate clearly how much money you need, what you intend to use it for and exactly where the business loan will be allocated (premises versus equipment versus staff, and so on). Prepare your repayment plan and be sure to include it in your documentation.
5. Get Expert Advice
It costs nothing to talk to your local SBA office or Small Business Development Center (SBDC). Each has experts on hand to help you navigate the loan approval process; it’s also likely that they will have their fingers on the pulse as to which strategies work well in recessionary times.
Many SBDCs also offer up free resources including small business events and seminars as well as books and publications on an array of business subjects. Some even offer computer workstations that you can use to conduct market research, create business plans, evaluate your company’s financial statements, and more.
- Loans and Grants Tool – This government tool lets you find what loans and grants your small business might be eligible for.
- SBA Recovery Act Agency Plan (published in May, 2009) – This plan outlines the agency’s goals for using its $730 million in stimulus money to help small businesses “recover, start, build and grow”.
- SBA Recovery Act Information Portal – This site includes links to fact sheets, loan information, podcasts and more.
- 12 Tips for Getting Your Bank Loan Approved (PowerHomeBiz.com)
- How is the Economy Looking for Women Starting Up Business? (American Express OPEN Forum)
- Stimulus Comes to Entrepreneurs who Wait (Entrepreneur.com)