It is depressing to be refused for a small business loan.
1. Get a Track Record (with Paper Documentation!) for Your Business
No matter how small you start out, you need documentation of the kind of operations you’ve been running, the day-to-day business tasks you accomplish, and your financial history. Your financial history should include both personal and business responsibility so that banks and lender know your business habits.
2. Learn Your Accounting Paperwork
You need to know three papers extremely well: your Cashflow Statement, your Balance Sheet, and your Income Statement. You must know all three of these documents very well. You should know what the numbers are for your business right now, and you should know what the percentages are for financially-healthy companies around the world. You don’t need to be a full-blown Accountant or Bookkeeper. However, you do need to know this information like the back of your hand.
3. Build Your Pool of Cashflow
Your business should always have a pool of loose money (usually in digital form) for day-to-day business operations. You should have a good-sized pool of cash for your monthly expenses, surprises, needed gifts, and business lunches with plenty of cash left over after that. If you don’t have nice, easygoing pools of cash in your business, your company will not look healthy to banks.
4. Collateral Investment
You should refer to Step #8 in this tutorial for most of your business loan collateral. However, if you have office space, business vehicles or workplace equipment, you will be able to put this up as collateral. Get your insurance agent to create a current asset evaluation of all of your pieces of collateral in business. This way, if something goes wrong, your bank will know that they can still get their money back.
5. Get Rid of Debt You Already Have
If you have run up too much debt or have not paid your debt off in a while, you need to begin making larger payments now. When banks see that you can pay off your current debt with aggressive force, they are happy to provide you with more of it.
Debt is like a little brother. If you don’t take good care of it, you will not be allowed to watch it in the future. Banks want to give you a loan. They just need to see a record of your babysitting skills.
6. A Lender Knows if You Know Your Market
If you cannot easily (and with great detail) provide your banks with business goals and milestones, you are sunk. You should know who your target customer is. You should already be drawing in those people and be able to show this with demographics and documented paperwork. You should have realistic and comfortable goals for your business every six months for the next five years. You should be able to describe in great detail how your current steps will lead to those goals and milestones. You better know your business, know your market, and understand how people think of your company. If you are unclear or unsure, you are sunk.
7. Ask for More than Enough Money!
You should always ask for more money than you currently need. There are three reasons for this. Pay careful attention to this step and the last step in this tutorial. These are your biggest money makers and loan obtainers.
Reason #1: You will always have unforeseen business expenses in the future. You will always have an accident, an extra expense, or an emergency. You need to expect this and provide for it.
Reason #2: Business loans under $100,000 are expensive for banks to take on. They need something that is large enough to be worth their while. A much larger loan will have a greater interest payment and bring them more money. Think about it from the perspective of the bank.
Reason #3: Banks are more comfortable with giving you one large loan rather than several, small, successive loans. They anticipate your business needs in the future. They know that greater cashflow and greater borrowing will lead to a higher chance of success. If you repeatedly ask for another small loan, you will seem weak and unclear about your future.
8. Most Important: Keep Your Credit Stellar
Your business is its own entity. Even if you are the founder, owner and supreme high manager of your business, your credit score is separate from that of your business. Therefore, you need to build business credit in the safest and most effective way possible.
Get a Business Line of Credit. Get the smallest, easiest business line of credit that you can get. Use it for small, weekly business expenses. Pay it off regularly every month, as early as possible. This builds business credit and builds it fast.
Do you want to know if you’d pre-qualify for a line of credit? Try our pre-qualification tool. No cost, no-obligation, and it won’t impact your credit score.
Take out a Small, Secured Business Loan. Under your business name, get a small, unsecured or secured loan. By securing it with your own finances, you show how reliably you manage your finances.
When you use both business credit and secured loans under the entity of your business, you begin to build a financial portfolio for your company. This financial reputation is solid, paid off continually, and in good standing with every credit agency in the world. That is the kind of reputation your business should have. This reputation will build influence, prestige, and get you a business loan every time.
In conclusion, remember to always use money responsibly. Money is neither good nor bad. It is an extension of each individual person. In the case of business, money is the extension of your company values. Follow your documented values, provide good service and watch the profits roll in.