Securing a business loan can be a daunting process, particularly in this economy. The best way to enhance your “asking” position is to do your homework. Before approaching a lender, get a copy of both your personal and business credit reports and make sure they are accurate. If anything is amiss, correct it with the reporting agency. If there are blemishes (late or missed payments, defaults, etc.) – prepare explanations.
Prepare a detailed written business plan with credible financial and market data. If you are already established in business, be prepared to provide two to three years of financial statements and tax documents. Understand that if you have a poor credit record (personal or business) or cannot demonstrate a personal investment in the business and the ability to repay a loan, you will not be considered a good risk. Instead of applying for a loan now, you may need to work at maintaining good personal and business credit (timely, consistent payment of debt) for at least two years and then reapply.
Your banker will know of several types of loans. One of the most common for small businesses is an SBA loan. The Small Business Administration does not make direct loans to businesses; rather, they guarantee loans. To get an SBA loan, a business owner must first contact a commercial loan officer at a bank. All SBA loan programs, even those for women, veterans, and the handicapped, require the business owner to start with a bank.
The bank evaluates the needs of the business, determines whether the potential borrower is eligible for a loan, helps the borrower fill out application forms, and determines which of the many loan programs is most appropriate for the situation. If the loan needs a guarantee in order to be more attractive to the lender, the package is forwarded to the SBA.
The role of the SBA is limited to guaranteeing some portion of the loan made by the bank to the borrower. This guarantee lowers the risk to the bank, but it doesn’t affect the amount of the loan.
Most banks in Idaho are SBA-approved lenders. However, some are more active in making small business loans than others. Start with your own bank to find out if they make small business loans. If not, contact a state or community bank. They are generally more interested in helping small businesses than the large national banks.
