As a small business owner your ability to secure small business financing will in fact determine how successful you are. Unfortunately, few business owners know how to improve their chances of getting a business loan which is why when the time comes they are not able to secure the loan they need to keep their business running.
Tip no. 1: Familiarize yourself with the bankers in your community's financial institutions
Prior to applying for a loan you should find out exactly which institutions in your community issue loans to businesses like yours. Not every bank specializes in giving business loans and those that do may only lend money to businesses in certain industries. Some lenders only lend to businesses that are at a certain stage of their business cycle. This is why it is important that you only work with bankers who are familiar with your industry. One big reason why you should work with banks that know about your industry is because they can give you some solid business advice. This advice stems for their experience working with other businesses in your industry and so they have come to understand the problems they face.
Tip no. 2: You should be able to easily describe your business's "Value Proposition"
You need to able to clearly communicate what value proposition you have. You should work on drafting a business plan that outlines three main scenarios i.e. worst case, most likely, and best case. You will want the banker to clearly understand all three of these scenarios. You should also be ready to discuss in great detail the assumptions that you make in each of these scenarios.
Tip no. 3: Weigh risks and benefits
If you want to get small business financing you need to start seeing things from the bank's perspective. Banks see things in terms of risk and benefit. You need to have a solid and viable plan which will mitigate the risks. Bankers do risk analysis regardless of if you do it or not but being prepared for it means that you stand a better chance of being considered.
Tip no. 4: Two ways to be able to repay the small business loan
Bankers always like small business borrowers who put forth a primary and secondary source of repayment. As a small business owner you are in the best position to determine all possible repayment alternatives. However, you should discuss the options with your banker. Secondary sources of repayment include the pledging of personal or business collateral. The more certain a banker is the higher your chances are of getting the loan.
Applying for and getting a small business loan can be a time consuming and tiresome chore. However, all business owners will have to apply for a business loan at least once during their time as businessmen. So, it is always a good idea to know what you're getting yourself into prior to applying for a loan.