Dos and Don’ts for Securing a Small Business Loan with Collateral

• DON’T ASSUME ANYTHING A Great Idea isn’t Always a Great Business Idea.
The first thing to know about getting a small business loan is that having a great idea isn’t everything. There are hundreds of great ideas—fantastically creative, never-been-done-before ideas. Not all of them are business ideas that can work. Some are just great ideas.

• DO HAVE A WRITTEN BUSINESS PLAN You will get nowhere without one.
Your business plan should outline what you want to do and how you plan to do it. It should define whom you are marketing to, how you’re going to execute your marketing plan, and then how you’re going to get paid. There are many resources available to help you create your business plan, so do your homework before asking for a loan.

• DO BE HONEST Integrity matters.
Lenders need to know they can trust you before they approve your loan. They’ll ask about your personal and business credit, your existing financials, and your collateral - which will be needed to secure the loan.

• DO GET AN APPRAISAL DONE ON YOUR ASSETS Know the real value so that you can state your case.
A bank will look at your company's history, business credit, revenues, balance sheet, and your equity contributions. If you pass a credit check and you operate a healthy business, most banks will also require an additional and tangible guarantee that their loan will be repaid - collateral.

• DO CREATE AN EXCEL SPREADSHEET OF YOUR PRIORITIZED OFFERING OF COLLATERAL Be prepared to negotiate what you want to offer.
Collateral assets come in many forms. Defined by the Small Business Administration, collateral is "an additional form of security which can be used to assure a lender that you have a second source of loan repayment." Most often, collateral is real property (i.e. an owner-occupied home). Cars are the most common forms of collateral, but you can also use watercraft, motorcycles, as well as pieces of equipment that have a title of ownership. Collateral can also be represented by your business's inventory, cash savings or deposits. In order to structure a loan that benefits both you and your business, you'll need to make the right decision about what you offer up as collateral to the bank. It's also important to be realistic when considering the risks of defaulting on a loan, which could have harsh consequences for not only your business, but on a personal level as well.

• DO PREPARE A SOLID BUDGET Critical to showing a lender your ability to repay the loan.

DON’T OVERESTIMATE YOUR INCOME. Under promise and over deliver.
DON’T UNDERESTIMATE YOUR EXPENSES. You always have more expenses than you think.

• DO FIND THE RIGHT TRUSTED FINANCIAL PARTNER (LENDING INSTITUTION) The right one can make all the difference.
When deciding which lender to approach for your loan, use your network in the small business community for referrals, and do your research on the web. Find out what other entrepreneurs think. Then, when you talk to a lender, ask to speak with someone that is familiar with your Industry.

For more information, contact us at 714.988.6355 or visit us online at www.1businessloans.com