10 Tips to Get a Small Business Loan
Tuesday, December 8, 2015
The central skill in being successful in business is less about controlling everything and more about managing. Doing the former is usually impossible anyway but the latter certainly is achievable. Part of the skill in management is knowing how to access the financial markets when extra funds are needed. But, even though business borrowing conditions are relatively easy at the moment, it's still worth knowing how the business loan environment works for a small business like yours.
Here's 10 tips to help in your preparation.
1. Hot Docs
Paperwork is a large part of the loan application. Getting the numbers to sing on paper is part of your job as the loan applicant.
This doesn't mean you cook the books. It means being up to date, knowing what figures count and knowing how to interpret and explain them.
For instance, you’ll need a good business and marketing plan, current profit and loss, bios of your management team, bank records and debt schedules. Imagine your business is a story and every document is a chapter.
2. Prep Up
It's easy to get overwhelmed when you've got the entrails of your life's work laid out in front of your friendly banker. To help you not be flustered, know that there will be questions, probably lots. Know also that you'll almost certainly be asked to provide more detail on some aspect of your business.
It's also worth being aware that there are lots of products out there. So it pays to know what you're asking for. That doesn't mean you have to stick to it (see below), but it does help you to know what language the banker is speaking.
Be prepared is not just a motto for Boy Scouts.
3. Woman/man with a Plan
Loan officers want to see that you have a plan. Don't be shy about laying out big ideas for your business, as long as you can back the big talk with facts.
The key is to consider that loans are about the future – yours and the banks. So, while past records and performances count, the clincher may well be in what prospects you have and how the bank sees you heading forward.
4. Get Real
Your big plans might be very, very real. To you. But without solid backing they will just look like idle dreaming.
The best mix is a bit of ambition and a lot of realism. Don't inflate your bubble so much that it's easily burst, leaving a horrible mess in the banker's office.
If you have big plans, back them with data and research. Don't just say it. Prove it.
5. No Surprises
Few things will upset a loan officer more than surprises. Don't hide your dirty washing and hope the bank will walk past the laundry.
If they do, then maybe that's dangerous for you in legal terms, as well as increasing the risk you are taking with any loan. That's because the bank is trained to calculate risk. Keeping something in the dark stops them from knowing how much debt is good for you.
And that's not good for your business.
6. Open Mind
As we noted above, it's important to know the landscape in which you're operating. But you are – probably – not an expert in loans. Your bank is. They may have a better plan for you.
Be flexible enough to listen and to consider other options to the ones you had considered. New products are always arriving in the financial market and it's the bank's job to know about them and to know whether they might suit your business.
You mind find there's a better product out there than even your extensive research revealed. Be prepared to let the experts guide you.
7. Rejection can be Good
No-one likes being rejected, for a loan or for anything really. But sometimes rejection is the best thing that can happen.
When we are turned away, the easy reaction is to be down in the dumps. The best reaction is to try and learn from your mistakes.
Often being turned down on a loan is a wake up call for you and your business and a motivation to get it right next time.
Loan rejection is not uncommon for small businesses. If you learn from each one, it won't become a habit.
8. The Elevator Pitch
There's a saying in business development known as the Elevator Pitch. As you may know, this is a method of parcelling up your business into a sentence or two; a quick and simple definition of what it stands for and what it does.
This applies as well to loan applications. You should be able to explain succinctly and in easy language what you are aiming to achieve and why the loan is important.
It should be clear but not vague. “To buy more stuff” is too woolly. “To upgrade my IT to compete with new tech-savvy operators” is more on the mark.
9. A Realistic Target
It's important you calibrate your loan amount to fit the actual outcome you're seeking. If you have costed new machinery at $X, why ask for a loan for $Z?
Borrowing too little will not allow you to achieve the outcomes you require and therefore will undermine the growth needed to service the debt. Conversely, going too high will make your repayments beyond your capacity to work down the loan.
Ask for what you feel you need and can repay.
10. Passion Pays
Bank loan providers want to hear why your business should get a loan instead of the other guy's. Sure, the paperwork and the numbers will go a long way towards getting the decision, but you may well be the X-Factor.
Don't be afraid to express the passion and love you feel for your business, your staff, your clients and for what you do. Passion has a place in business and in any loan application or meeting.
You don't need an Oscar performance, but don't be shy about laying it all out and in letting the bank officer know that your business is special.
Secret of Success
Success in loan applications is generally found in a happy confluence of fact and face time. Getting the balance right, between your paperwork and your pitch may well be the difference you need.