Tips and Advice to for getting Small Business Loans

If you’re looking to start a small business, or you already started and you need an influx of capital to grow, a small business loan may be just what you are in need of.   

Small business loans used to be like ripe apples on a tree; easy to get and healthy for you, financially speaking. Today however, getting the funds to start a small business is much more difficult, time consuming and, often-times, not successful.

The reason is simple; small businesses fail.  They fail at a much higher rate than any other type of business. Banks and lenders know this of course and have set the bar very high for them to be able to qualify for an affordable small business loan.

It’s not impossible however and, if getting approved for a small business loan is on your ‘to-do’ list, then the Tips and Advice below will be invaluable.  Enjoy.

Here’s the first question, and it’s the most important; do you even qualify?

In order to even qualify for a bank or SBA loan (and get their very affordable terms) there are a few rigid requirements that you need to meet.

• You need to be in business for at least 2 years
• Your annual revenue should be at least $250,000
• Your business and personal credit need to be in order, and nearly spotless
• Your business needs to show that it’s cash flow positive
• You will need to have a large amount of your money invested, or as they say, ‘skin in the game’ of your business
• A very strong, well-constructed business plan
• Cash flow projection for at least a year

As you can see, getting a small business loan for an affordable rate means that you need to be experienced, already successful and making money, which is not a guarantee to be sure, and you need to have kept your credit nearly perfect during the start-up, which is very difficult for most small businesses.

In many cases, even if you meet all of the qualifications we outlined, the bank still might turn down your loan request because you didn’t have enough collateral.  If you don’t own your own home, the building where your business is located or some other type of valuable asset, you might get turned down also for a small business loan.

Unfortunately, the truth is that a very small percentage of small businesses would actually qualify for a bank or SBA loan.  That’s why planning your start-up well, and getting all of your financial ducks in a row before you begin, is so important. The more things you do right when you start your business, the more chance you’ll get approved for a small business loan down the road.

Does your Business Qualify for a Small Business Loan?

If it does, congratulations!  You’re one of the minority who actually survived the start-up phase and keep your financial house in order too.  Good for you!

That being said, here are a few tips for finding the right bank.

• Contact as many banks as possible. 8 or 9 is a good idea, or more.
• Get detailed rates and terms.
• Don’t be afraid to tell all the bankers that you’re looking at other banks

Remember, before you go to any bank make sure to have your rock-solid business plan and practiced answers for the myriad questions that they’re going to ask. Also remember that getting a small business loan means opening up your financial life to the banks, something that some business owners don’t really want to do.

Does your business NOT qualify for a Small Business Loan?

If your business doesn’t qualify just yet there are a few things to do so that, when you do, you’ll be in the best position to get approved for a small business loan.

• Make smart business decisions. Remember, a mistake could cause a blemish on your credit, so think every decision through thoroughly.
• Start making contacts at banks and doing business with any bank that you think is a good fit for your business in the future.
• Keep detailed analytics of the business so that you can prove to the bank what’s been happening and the great decisions you’ve been making.

1) Small business loan alternatives

There are alternatives to small business loans, but the low interest rates and security you’ll find with a bank or SBA loan won’t be there waiting for you. 

2) Online term loan lenders

Only a year ago merchant cash advance and daily debit loan providers were charging upwards of 50% APR, even to businesses that were profitable.

Today prices have dropped, but with online term loan lenders still charging 24% APR on average with a 1 to 4 year repayment plan, they still aren’t very palatable. Fundation, FundingCircle and other new online term loan lenders have filled a valuable need however, high APRs or not.

3) Crowdfunding

In the last few years a plethora of so-called “crowdfunding” websites like KickStarter, IndieGoGo and a number of others have allowed small business owners and entrepreneurs the ability to get ‘funded’ online.  Crowdfunding basically involves reaching out to the community (i.e. the internet) and asking lots of people to ‘donate’ (pay you) a small amount of money to help your start-up, idea or business get off the ground.

Both of these small business loan alternatives have their positives and negatives, of course.  High interest rates and the cost of running a good crowdfunding campaign are what you have to deal with if traditional lending isn’t available to you.

In conclusion, getting a small business loan isn’t easy. They are available, and if you qualify then you’re golden.  Most don’t however and need to see alternative funding methods to get their businesses off the ground.