Need cash?
Boost your odds of getting a Small business loan with these simple tips.
Commercial and industrial lending is increasing for
larger companies, but according to the Thompson Reuters / Pay Net
Small-Business Lending Index, the number of traditional bank loans to small
businesses has fluctuated wildly over the past year. And, let’s face it,
small-business owners remain uncertain about what 2013 holds for their business
and the economy.
In fact, in its latest report the National
Federation of Independent Business confirms that small-business optimism
remains relatively low.“The good news is banks want to
make small
business loans. It’s just that many banks are not able to properly
scale their resources to include all deserving borrowers, even if
small-business owners do meet the stringent standards set by lenders,” says
James Walter, founder and CEO of BBC Easy, a provider of automated
loan management software for financial institutions.
“The fact is many banks
are using outdated technology, so the more organized you can be, the more
quickly you can be approved.”If your business needs credit to grow or a
temporary infusion of cash, receiving a loan may be difficult in our
still-recovering economy. There are important variables in play when banks
evaluate your credit worthiness. Walter and BBC Easy’s co-founder, Corey Ross,
offer these tips to increase your chances of securing a loan.Get your financial house (and documentation)
in order.
Typically, a business needs to
have been profitable for the past three years in order to qualify for a bank or
SBA loan. Since most lenders will look closely at your credit history prior to
making a decision, keep an eye on your credit score and anything in your credit
report that might be a red flag. Remember, most banks will require that you
personally guarantee the loan, but if you have sufficient collateral within
your business to cover the loan principal, they shouldn’t require a lien on
your home. Tell your company’s story.
“In my prior experience as the co-founder of a lending company, one of the most
basic errors made by loan applicants was not telling me why their company needs
the money. And they wouldn’t reveal why we should approve the loan even though
their company doesn’t meet our minimum standards,” says Walter.
Is your industry experiencing
growth? Are you scheduled to partner with a major retailer? What’s your story? “Don’t
just say you want a loan, turn in your documentation, and expect the loan
officer to rubber-stamp your request,” adds Walter. “Fine-tune your business
pitch to include your future prospects–not just highlight past successes.”Go local. A national bank is
less likely to hear you out if your business hasn’t been profitable for the
last three years. It is also likely that your company will be passed over if
you are lacking sufficient collateral to secure a loan.
“Visit a community bank and also
inquire about SBA loan programs,” suggests Ross. “Since up to 80 percent of a
business loan can be guaranteed by the government under the SBA program, some
banks may be more lenient. The downside to this route, of course, is the
lengthy paperwork and delay in securing financing due to bureaucracy.”Look at alternative financing for short-term
needs. Alternative financing is on the rise as
historically profitable or growth-stage companies face shortfalls in cash flow.
“Asset-based lending and factoring are good bridge financing avenues for many
small businesses,” With factoring, a company sells its accounts receivable to
receive a short-term loan of up to 80 percent of its value.
Asset-based lending
is more comparable to the traditional loan process, where a lender will
evaluate accounts receivable, inventory values, and fixed assets to determine
creditworthiness, and issue a line of credit. If you don’t qualify for
traditional bank financing, look at these alternatives, but expect interest
rates on these types of loans to be at least double what you’d pay for a
traditional loan.
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