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5 Essential Steps to Securing a Small Business Loan

The right amount of cash flow can help small businesses thrive! This allows these businesses to make payroll, pay suppliers, and keep their everyday operations going. To maintain a positive cash flow, businesses can always turn to commercial bank lending to fill in any gaps in their finances, but banks don’t provide loans to just any business. Tap into the knowledge and experiences of top lenders with these essential steps for securing a small business loan.

#1: Get Your Financial Issues in Order
Before you fill out an application, it’s essential to deal with any negative financial or tax issues, both in your business(es) and personally. Any credit report with negative results, even inaccurate ones, can become a “deal buster” for many lenders. In addition, other factors that indicate risk to a lender include back taxes, liens, garnishments, and multiple bounced checks. Lastly, those who have had to claim bankruptcy in the past are not permanently excluded from qualifying for a loan when a reasonable explanation is provided. To deal with any of these issues without affecting your ability to get a loan, you should sit down yourself or meet with an advisor to address any business or personal financial problems before starting the loan application process. 

#2: Create a Viable Business Plan
The business plan you share with your commercial business lender must be a realistic outline of the business finances, management, and marketing efforts. Additionally, as a borrower, you must explain how the loan money will be used and repaid. The repayment ability is a critical factor that lenders will look for when assessing whether they can lend you the total amount you are applying for. Few traditional lenders will provide 100% financing without a demonstrated repayment ability, and some may deny the loan altogether.

 #3: Forecast for Every Scenario
In most cases, borrowers must provide a minimum of 12 months of financial projections broken down into a month-by-month format. These financial projections should be backed up with a proper explanation of how they were developed to be valid. From there, you should create different sets of projections of a best-case, mid-case, and worst-case scenario. This will demonstrate that the business will be able to survive should the unfavorable happen in terms of drops in revenue. Lenders will become that much more comfortable with your repayment ability if you can demonstrate your strategic thinking abilities as the borrower.

#4: Establish a Business History
Most lenders recommend establishing at least two full years in business before applying for a small business loan. This is because loans given to start-up businesses can be challenging to approve without the ability to demonstrate long-term repayment ability. In these cases, lenders may require an additional cash injection by the owner or even a seller to carry back to reduce the loan amount. Additionally, a proven franchise concept can help establish repayment ability to mitigate any risk further.

 #5: Become a Hands-On Business Owner
A borrower who is hands-on with their business’s success through sensible business practices will have an easier time securing a loan. This demonstrates to the lender that you can maintain control of your bottom line with the following methods:

  • Maintain customer payment schedules so that accounts receivable is collected on time.
  • Monitor business operations for any work that can be done in-house, as opposed to contracting out, so cash isn’t tied up in inventory.
  • Generate additional cash flow by regularly reviewing business expenses and eliminating discretionary items.
  • Grow your bottom line by eliminating unprofitable account relationships and increase efforts to market your business to more profitable accounts.
  • Avoid cutting down on marketing expenses when business is slow because new customers may be critical during this time.

Are you ready to apply for a small business loan? Our business lending services were designed to provide small businesses the cash they need to thrive! Contact us today to get the financing you need.

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