A major dilemma that can develop into a nightmare for many business owners
is obtaining a loan for financing business expansion or day to day working capital.
Too frequently, owners who are able to arrange for the financing of starting their
business, then are confronted with the problem of where to turn when in need for
additional capital.
However, this concern can be easily dispelled when certain steps are taken to ensure
the availability of the needed capital. These steps, or what we may consider
as "Business Financing Tips," cost business owners nothing in terms of dollars and
cents. They simply require a little time and effort in the daily conduct of
their business.
First and foremost, the owner should have a "Business Plan". Generally, whenever
one goes to arrange for their "start-up" financing, whether it be with a commercial
bank or through the U.S. Small Business Administration, business plans are almost
always required. Often one has personal funds available for the initial financing
and may proceed without a business plan. However, even in this case, it is
important to prepare a plan.
A business plan serves several purposes. To the owner who may be in need of
financing, the primary purpose of the plan is to supply financial institutions with
the information they need to have about a business, i.e. who the principal(s) are,
where the business is, where it will be going and how one is going to get there.
In addition, it will show how much money is needed, when it is needed, and how to
get it.
Secondly, a business plan helps keep businesses on sound financial footing.
Generally, in the initial stages of a new business there is adequate financing to
pay bills. As time goes by, however, there is a tendency to postpone the payment
of bills. Two possible problems can arise. The first being that the
company credit rating can be adversely affected. The other problem is that
business owners are frequently asked to provide the names of suppliers for credit
reference purposes. Obviously, it is important to maintain a good credit rating
with suppliers, and a good business plan will keep that objective clearly in mind.
One way of ensuring that a loan request will be looked upon favorably, especially
with a bank, is to establish a loan history with the bank. One can borrow
a small amount of money, even if it is not needed. When the loan is paid off,
say in three to six months, a good credit rating is established with the financial
institution. By doing this three or four times, one quickly establishes not
only an excellent credit rating but is also seen as a low credit risk. In
addition to maintaining a good rating for the business, keep all personal bills
current. Not only are lenders concerned about the credit rating of the business,
but they will look into personal credit ratings. Having current financial
statements available for a business is a must for securing a loan. These statements
should include profit and loss, a balance sheet, cash flow, and the most recent
federal tax returns, both personal and business.
One "Business Financing Tip" that is probably the most overlooked, yet the easiest
to establish without cost, is knowing your banker. The very first step to
make when starting a business is to become acquainted with your banker. It
requires very little effort to stop by your banker's desk and simply say "Good Morning"
or "Good Afternoon"or to occasionally sit down and let your banker know how the
business is progressing. When the financing need arises, this personal relationship
can go a long way in removing any loan barrier.
As a business owner, know how to talk about your business and the market which you
serve. Simply being able to convey to a lender that you know your business
can go a long way in securing that very important loan. Have a thorough understanding
of your market. Know the size of the market, the market share of your businessand
how you are going to increase your market share.
There are two other aspects of your business you should know. First, your
competition. Who is your competition? If they are dominant in the market
place, what are they doing right which gives this dominant position?
Second, what can you do to make your cash register ring more often? Or, what
can you do to get more customers through your front door? Review your product line,
service, site location, and advertising.
Obtaining a loan for business expansion or working capital is not always based on
one's net worth or financial statements. Having a good credit history, both
business and personal, coupled with having a business plan which will demonstrate
knowledge of your business will normally be the ground breaker for obtaining a loan.
Add to this the little nuances of knowing your banker and having good credit references
should more than suffice in order to obtain that necessary loan.