Getting Accepted For A Small Business Loan

When starting a small business, one of the most important things to consider is financing. You will need enough money (or capital) to run your business until it begins to make a profit. One of the chief reasons that small businesses fail is lack of sufficient capital.

There are several ways to get enough capital to start and maintain a business but you first must decide just how much money you need. Do you need the money to expand or are you just beginning the business? Capital is especially critical in the beginning stages of a new business. Assess your risks, as that will affect your financing options and cost. Whether your industry is stable, growing or depressed it all affects how much money you can borrow and what interest rates you can get.

After assessing how much capital your business needs, you will decide whether you want equity or debt financing. Debt financing takes into account the company’s debt to equity ratio, the relation of the funds you have borrowed and those you have invested in the business. If you have invested a considerable amount into your business and have decent equity, it will be easier to attract financing. When a company has a less equity than debt, you’ll want to increase your equity investment for more funds so that you aren’t over-leveraged.

Banks, commercial finance companies, the U.S. Small Business Administration (SBA) and savings and loan companies offer debt financing. Historically, businesses have patronized banks for financing, especially for short-term loans. Banks will often turn down small businesses requesting long-term loans because of the risks involved. When a business applies for a loan, the lenders usually ask for the borrower’s personal guarantee as well as considering the business’s equity. This could require merely a signature or posting of collateral.

Most small businesses make use of equity financing. Commonly, the source of equity funding is from venture capitalists. These are institutions that risk money on small businesses, hoping for a good return for their investment. These venture capitalists may be individuals, government sources or financial concerns. One well-known example of capitalist investing is Silicon Valley.

Whether you decide on equity or debt financing, you will need to present a financial picture of your business. Any financial institution or investor will require documentation of your real or projected annual sales, how many people you employ, how long you have been in business, which type of business you have and who owns it.

You will need to put together financial statements for the past few years as well as current statements and submit personal financial statements of any partners, officers or stockholders that own twenty percent or more of the business. Any person or institution lending your business money will want to know exactly how the business will use the funds.

Lenders will scrutinize your financial statements carefully so the statements should be accurate and up-to-date. You will need balance sheets from the last three fiscal years, cash flow projections, personal tax returns for the past three years, income statements on the business’ profits or losses as well as accounts receivables and payables.

As you can see, it takes much careful preparation should you decide to apply for a loan. Your local SBA can be a tremendous resource in preparing for and applying for a small business loan.

What Can I Do to Avoid Business Bankruptcy?

Making an attempt to avoid business bankruptcy is all too common among tiny firms that are owned and controlled by folk who place all they have on the line to be successful. Before they know it they can become caught in debt though the company looks to be thriving. Many though trying their hardest to avoid business bankruptcy will ultimately become a victim of a business bankruptcy option. Little firms are the heartbeat of the state’s economy and America can barely afford to have so many broke firms filing in the courts. For many entrepreneurs, it’s unhappy to see the demise of their dream. They wildly juggle payments to creditors to avoid approaching bankruptcy.

Incredibly, many economic firms are prepared to barter the debt owed them helped by pro, credit counsellors. In many cases the bartered debt can be as little as a few cents on the buck. Though banks may not receive the full debt owed them, it is far better than if the business requested bankruptcy. If that were to occur, they’d lose all of their investment. Credit support services can work out an acceptable payment a businessman is capable of meeting. Should entrepreneurs default on this payment agreement, all assets will then be sold and any cash is directed to the banks.

One of the options available in order to avoid business bankruptcy is finding loans with favorable rates to help you ride out the storm. Another way to avoid business bankruptcy is to look around for expendable assets that you can sell to raise extra cash. If you have employees, consider cutting incomes anywhere from five p.c. to ten p.c, and stop paying yourself until the business starts to rebound.

Where Do I Turn To?

Another trend to avoid business bankruptcy is to search out angel stockholders. Stay solvent help that appears too good to be true. If it looks to be too straightforward, there could be some type of catch. You will have to pay a commission of 8% to 12%, but a business broker will help you price the business correctly. A business broker will also market the business for sale, qualify potential buyers, and work to get the deal to closing. A good broker will significantly increase the chances that you will sell your business.

You may want to consider this option to avoid business bankruptcy. Talk to your customers ; ask them what you can do to keep their business. Consider lowering costs or shorter delivery times be it a product or a service.

A Small Business Loan

A small business loan is one of the most treasured commodities in the business world. It is still very hard to get despite the claims and promises of banks, credit unions, and other lending institutions that they want to help American small business to survive and grow. In fact it sometimes seems that banks and other lenders want to see small businesses fail and only support those that survive the battle for customers, revenues, and finances during their first two years.

Getting a small business loan is most difficult during these first two years, when most businesses face a myriad of challenges involved with not only opening their doors, but hiring and training staff and meeting the demands of customers, clients, suppliers and vendors. The main reason that the banks use for not granting many loans during this period is like the same reason that a student can’t get a job coming out of school. They don’t have the experience.

The other major reason behind that first reason is that the banks think that many small businesses are simply too great a risk to offer them a small business loan. On that front they do have a point. The majority of small businesses open and close their doors for good during that first year and from the banks’ perspective they don’t want to risk losing their investment during this period.

But after a small business survives those first two years of struggle the banks are much more accommodating. By then the business not only has experience and has proven its capacity to overcome adversity, it also has a track record of being in business. This will include having a financial statement or income tax return prepared twice as well as a record of how well they have been paying their bills to other businesses, suppliers and vendors.

The banks are able to access this information by doing a business credit check from any one of a number of business credit reporting agencies. They can also access a company’s payment record by reviewing their Paydex Score which is available from business reporting company, Dun and Bradstreet. Whenever there is an application for a small business loan, all lenders will review this information before even looking at the rest of the loan application.

If all the business credit checks and reports come back okay the banks and other lending institutions may look further into the business requesting a small business loan and this often includes a personal financial check on the owners or operators of the company. They may ask for business references to follow up with and they may even ask for a personal guarantee or collateral before granting a small business loan.

Agencies like the Small Business Administration can assist small businesses to obtain a small business loan since almost all of the monies provided to small businesses are guaranteed by them even before the bank loosens up its money strings.