Many small businesses struggle to accumulate the capital they need for expansion goals. Since most businesses count on regular growth to fuel their survival, a lack of capital can spell doom for an otherwise promising model.
Small business loans can help entrepreneurs close the distance between growth and predictable revenue. In order to qualify for a loan, it’s advisable for small businesses to take a few preparatory steps.
Know your sources
Before you can get a small business loan, you should have a clear idea of the best available lenders. The Small Business Administration exists to support the efforts of small business owners. The SBA offers low-cost loans, and will even approve businesses with a limited credit history. Unfortunately, SBA loans require significant paperwork, and may not work for time-intensive endeavors.
Traditional banks offer excellent incentives for loans to qualified business owners. The approval process is also much quicker than that of an SBA loan; unfortunately, newer businesses can struggle to meet qualifications for bank loans. Lenders often want to see proof of steady revenue, along with resources that newer businesses simply do not have.
Have a plan
Regardless of the lender a small business owner chooses, he or she should have a detailed business plan to present along with the application.
Lenders want to see that business owners understand three things:
1) The operation of their company
2) How the market functions
3) The company’s standing among its competition
It will also help to gather both projected and existing financial statements as proof of the company’s health and growth potential.
Some lenders will want proof of collateral before they approve a loan. A small business owner should be prepared with a detailed accounting of the business’s assets, which could include vehicles, machinery, real estate or computer equipment. Small business owners can also provide proof of personal assets as a loan guarantee.
If all else fails, a small business owner can always apply for a business credit card. In order to use these responsibly, however, business owners must keep business and personal expenditures rigorously separated, and maintain detailed expense reports.
Another option is to find grants for small businesses. See our related article about grants for women entrepreneurs with bad credit.
However you get the funding you need, remember to pay debts on time to establish the credit for future expansion.