Some tips to get loans for starting a small business

When most people think of Small Business Loan, what comes to mind is usually basic information that's not particularly interesting or beneficial. But there's a lot more to Small Business Loan than just the basics.

See how much you can learn about Small Business Loan when you take a little time to read a well-researched article Don't miss out on the rest of this great information.

As many small business owners know, financing is crucial to the financial health of their enterprise. While some small business owners have the resources to launch their business, most look to the credit market for financial help. Indeed, the banking industry is an important source to gain necessary capital. However, many entrepreneurs may not realize that that applying for commercial credit requires a great deal of preparation. Here are five tips to assist entrepreneurs in improving their chances of getting credit approval.

Tip #1: Decide on the type of commercial loan that is needed. Loan options include short-term loans, intermediate loans, long-term loans, and lines of credit.

Short-term loans are usually for less than a year. They typically provide interim working capital for a business temporarily in need of cash.

Intermediate loans are often used for business set-up, the purchase of new equipment, expansion, or an increase in working capital. This loan can be anywhere from 1-3 years.

Long-term loans are for major capital improvements, acquiring fixed assists, and business start-ups. The loan term is usually from 3-5 years and repayment installments are on a monthly or quarterly basis.

Having said this, how does one go about getting this loan

The fist step is to take a look at the vast number of commercial loan sources that offer help in this area such as Chase, Citibank, etc. Also, with the Small Business Administration (SBA), you should be able to arrange a connection with one of these banks. This is one of many organizations that specialize in loans to small businesses.

Contrary to the belief that bankers actually look for reasons to turn down prospective clients in need of a loan, they are in the business to lend money. This means that every time a banker is sitting in front of a potential client, they are hoping to make the deal work just as much, if not more than the client wants it to work.

A bank�s primary role in the small business lending area is funding growth. An example of this would be to finance the expansion of small business with a proven track record. Most banks can offer a wide variety of loan packages designed to finance expansion of an already existing small business.

Below are a few examples bank loan packages :

1. Asset Based Financing. Asset Based Financing is a general term describing a transaction whereby a lender accepts collateral and assets of a company in exchange for a loan. Most asset based loans are collateral against other accounts receivable, inventory, or equipment. Accounts receivable is the most favored of the three because it can be converted into cash quickly. Banks will only advance funds on a percentage of receivable or inventory, typically being around 75% of the receivable and 50% inventory.

2. Line of Credit. A line of credit involves the bank�s setting aside designated funds for the business to draw against for the cash it needs. As the line of credit is used, the credit line is reduced and when payments are made the line is replenished. One major advantage of a line of credit is that no interest is accrued unless the funds are actually used.

3. Floor Planning. Floor Planning is another form of asset based lending in which the borrower�s inventory is used as collateral for the loan. Car dealerships are a prime example of a business that often uses floor planning as their primary financial tool.

Tip #2: Make sure all paper work is in order. Applying for commercial loans can be very tedious and requires much more documentation than applying for consumer credit. So, the key is to be prepared. In addition, entrepreneurs who have carefully put together the needed paperwork to include the loan purpose, the amount of money needed and for how long, and a repayment schedule proposal will be viewed more favorably by many lenders.

Tip #3: Develop a well thought out proposal. The proposal should include the loan purpose, the amount of money needed and for how long, and a repayment schedule proposal. Points to include are the business description that tells the nature of the business, product and service, a personal profile, and a business plan that outlines the corporate strategy for the next three to five years. Additional points to add are supporting documentation that supports the information outlined in the proposal, and collateral that will be used to secure the loan. Financial statements, both personal and for the business, are important as well.

Tip #4: Seek advice! It is important for entrepreneurs to talk with someone who has gone through the process of obtaining commercial credit before a lender is approached. This is especially important for the first time buyer. Entrepreneurs can approach mentors, qualified business counselors, business support groups, and the U.S. Small Business Administration. This step will increase the chances of getting a favorable credit decision.

Tip #5: Be prepared to pursue various options. Sometimes, financial institutions will say no. Once again, obtaining credit can be difficult, especially for entrepreneurs who are first-time borrowers. However, since financial institutions have different standards, an inability to meet the standard of one lender does not mean one fails the standards of all. It is highly possible that credit approvals can be gained with another lender. So, it is important to keep seeking until a lender is found.

Obtaining credit is necessary for many small businesses. Knowing what steps to take in this process can greatly increase an approval from a financial institution. Now, put these five tips into practice and be on your way to getting the credit you need for your business venture.

Now you can be a confident expert on Small Business Loan. OK, maybe not an expert. But you should have something to bring to the table next time you join a discussion on Small Business Loan.