BUSINESS BUYER TIP

How to Get A Business Loan
By Anita Campbell

See if the following sounds familiar: You bootstrap your business to get it off the ground, perhaps with personal savings or FFM (family and friends money). After a while you tap into credit cards as a quick source of cash to pay expenses. Before you know it, credit cards aren't enough. Or the finance charges make them an unwise choice for large expenses.

That's when you start thinking about a loan or a line of credit. And that's good, because it means you are thinking for the long term. Just don't wait too long to apply for a business loan. Don't wait until you're a week away from missing payroll oryour credit cards are maxed out. In short, don't wait until your business is in crisis. Ideally, the decision to go after a business loan should be a strategic one. Try to anticipate the need for a loan in advance. Give yourself time to shop around for the best loan terms. You can't deal with lenders from a position of strength if you're desperate.

As you start your loan quest consider two key issues:

• Your reason for needing a loan—"I need more money" isn't a good enough reason to saddle your business with a big loan—or even a small one. Do you need to hire additional staff? Or do you need a line of credit to smooth out seasonal dips? Be specific. Your reasons for needing the loan will dictate the loan amount you request, the loan terms, and which lenders to approach.
  
• Your ability to repay the loan—Run the numbers. Make sure your business is fundamentally strong with the realistic prospect of repaying the loan. We may be tempted to jump on a loan as the answer to our business financial problems. In reality, a loan may just mask deeper problems (such as a business in trouble, with costs that are too high or sales that are too feeble).
  

How to Prepare for Your Loan Application
Lenders look at your personal credit history, business credit history (if established), and your ability to repay the loan. They also look at whether your business is solid and viable. Almost certainly you will have to personally sign for a small business loan – it's standard, so don't be surprised. Depending on the type and size of loan, you may also be required to put up collateral or security, either from the business or sometimes from personal assets. Again, don't be surprised.

Here are some tips to get your ducks in a row before applying:

• Go get a copy of your personal credit report in advance. If your credit history has black marks and you have time, try to establish a clean record for a period. If you have high credit card balances, try to pay them down. Go to MyFico.com to find out more.
• Make sure any business trade references and business credit (through D&B, for instance) are in good order.
• Most lenders will require up-to-date financial statements, including an Income Statement and Balance Sheet. Accounting software or an accountant can help with this. The Small Business Administration (SBA) also offers downloadable financial statement templates for DIYers.
• Assemble copies of the last three years' tax returns (personal and business).
• Depending on the size and type of loan, you may need a business plan. The business plan demonstrates that your business is solid and feasible. The executive summary is crucial—make it crisp and compelling. Go to BPlans.com for business plan resources.
  

Finally, before you formally apply, call or visit a few different lenders to get an idea of loan terms and key requirements. All of this planning and preparation may sound like a lot of work but it will be well worth it, as getting a loan can help you to grow your business and accelerate the pace.

Anita Campbell is editor of Small Business Trends, a site that tracks trends affecting the small business market.



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