Small businesses are a cornerstone of the economy, and entrepreneurs are innovators and job creators. In the wake of economic uneasiness, many people have left their original careers to pursue their passions as small business owners. Unfortunately, starting a business isn’t always easy, and finding financing for that business can be even harder.
Luckily, financing is available for small business owners who know where to look. By doing a bit of research, you can find a small business loan that can give you the start-up money you need. Below are some tips and resources for finding the money you need to get your business off the ground.
Savings, Friends & Family
For most new business owners this will be the only available source of financing. Personal savings should come first, but before asking family and friends, it is a good idea to prepare a well thought out proposal.
Banks are some of the best-known lenders, and they are an excellent choice for small business loans. It’s easy to confirm that a bank is trustworthy and reputable, and banks tend to have deep pockets. This allows them to offer the lowest interest rates and best terms. However, they are not the right choice for a start-up. Banks are heavily regulated institutions that are risk adverse. The conservative lending principles of most banks prevent them from taking on the higher risk of lending to a company without a track record.
Even after your business is well established, not all banks are eager to loan to small businesses. Nevertheless, you must be prepared to be persistent. Starting with a list of banks in your area and working through them one at a time; it may take several applications before your proposal is accepted. The key in this process is to get feedback from the lenders about the reasons for the denial that way you can work on those weaknesses and present a better case to the next bank.
To speed up the process, you might want to look for lending institutions that are specifically affiliated with the Small Business Administration. You can also ask around among other entrepreneurs to see where their funding has come from. This can help narrow down your list to the most likely lenders before you begin issuing proposals.
Banks aren’t the only financing option for small businesses, and some entrepreneurs may find that start-up money can be found in surprising places. Investments from individuals and small businesses can be used to fund a business, and websites exist specifically for this purpose.
If you’re not getting any luck with banks in your area, it may be worth searching the Internet for funding from these sources. You will need to do more research to confirm that the website’s offer is legitimate, but private investments may enable you to fund a project that otherwise could not get bank backing.
How to Get a Small Business Loan
Whether you’re approaching a bank or using an investment website, you will need to craft a proposal for your business loan. The audience if your proposal may vary slightly depending on the type of financing you’re receiving, so it’s important to research any guidelines before submitting your proposal.
In the case of bank loans, the rules for proposals are generally quite similar. The loan proposal is similar to a business plan. In it, you must succinctly explain to the bank what your business is and how they money will be spent. The lender must be able to tell that your small business will be a good investment.
Here are a few tips for making your proposal more successful:
- Keep it brief but thorough
- Maintain professionalism in the language and format of the proposal
- Ensure that the proposal is self-contained as you may not be there to explain it or answer questions
- Make sure that any figures, such as projected income and expenses, are as accurate and reasonable as possible
When crafting your proposal, be sure to make it as thorough as possible and don’t leave anything out. Your lender will know about your credit history and other similar information, so trying to hide anything unflattering will only make you look unprofessional. Don’t, however, bombard the lender with unnecessary information. Focus instead on what’s required to tell the story of your business and prove why it will be a good investment.
You can learn more about start up businesses and loans by buying the following books at Amazon The Small Business Start-Up Kit: A Step-by-Step Legal Guide and Anatomy of a Business Plan: The Step-by-Step Guide to Building a Business and Securing Your Company’s Future