An Introduction to Small Business Loans
Each and every business needs some capital inflow from time to time. In fact, capital is required right from the word go when setting up a new business and from time to time in established businesses where a more than normal influx of capital is required. While many small business owners often use their own money or borrow from family or friends for these needs, the majority of businessmen use small business loans from banks and other agencies that support small businesses. In fact, there are a number of banks with special tie ups with the SBA in the US that provide loans for new business and have special departments that provide loans for small businesses.
If you are a small business owner, you can get a small business loan for the following purposes:
- Working capital
- Inventory
- Real estate acquisition for the business
- Refinancing for business acquisition
- Construction
- Renovation or improvement of leased property
- Machinery or equipment purchase
- Furniture or fixture purchase
The SBA has put into place a number of schemes that make getting a small business loan easy for entrepreneurs. However, this does not mean that you will get a loan from the first bank you approach or that you will be provided with a small business loan without having your own documents in order. Any lending agency or bank will need to know the reason why you need a business loan and how you plan to pay it back. Therefore, you will need to provide all kinds of paperwork that will convince lenders of your needs and your ability to repay the loan on time. In order to get a small business start up loan, you will need to get the following documents in order:
- A business plan detailing what your business is, how you plan to start up, your market and your projections for expenses and income. Business plans that take cognizance of risk and plan for contingencies are appreciated more than plans that paint a rosy picture or quote unsupported figures and projections.
- You will also need to prepare a statement detailing the purpose of the loan, how much you need and where you plan to spend it.
- Projected cash flow statements for at least the next two to three years, so that your lenders can get an idea of how you plan to repay the loan. If you are an established business, then providing your past cash flow statements and income tax returns will give lenders a clear idea about your ability to pay back the loan.
- You will also need to provide details of your own personal finances, like your bank and credit statements for the past one year. Since most businesses require collateral for providing you with a small business loan, you will also need documentation that shows ownership of property.
Remember that having a good credit score will greatly help you in getting loan for a new business. Therefore, if you can afford it, it is advised that you first improve your credit score as much as you possibly can before filing your loan applications. If you have taken some loans earlier and paid them back on time, then this increases your chances of getting your loan application approved. |
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