How Easy Is It to Get a Small Business Loan?

Owning a small business is exciting!

To get a small business loan you must be prepared. Lenders will view your small business as a high-risk venture unless you have a documented, successful track record. Your preparation must include an analysis of your credit scores, both business and personal. If your personal credit score is over 700 and your business credit score is over 75, in 2011, a bank might be willing to provide you with a small business loan.

Your Personal Finances

Getting a small business loan requires preparation.

To facilitate the loan process, you will need to prepare a personal budget that shows income and expenses, documented with your bank statements for the past few months, and income tax returns for at least two years. A bank will require an accounting of your personal assets and debts, such as real estate, automobiles, mortgages, loans, savings, money market funds, stocks and your life and medical insurance. A careful accounting of this personal information is a good start for improving your chances of acquiring a small business loan.

Business Information for a Small Business Loan

While your personal credit standing indicates how well you handle money, your business information will reveal your skills in managing a business.

A business plan is required for a small business loan. It should state your business goals and desire to operate your business successfully for the long run. You must describe your product (or service) and market niche that differentiates it from the competition. Your plan must analyze your market, its size, the competition, and your customer demographics.

A lender will evaluate your business financial statements, past and projected, to determine profitability and how much of your own money is invested.

Getting a Small Business Loan May Require Assistance

To make it easier to find and get a small business loan, the U.S. Small Business Administration (SBA) provides a nationwide network of Small Business Development Centers. Its website provides location and contact information for your local center (sbdc.com.au).

A counselor with the center will assist you in preparing for a small business loan application, offering significant assistance in writing your business plan, especially the difficult parts dealing with market analysis and your business financial statements. When prepared, the counselor will assist in finding the appropriate lender for your loan.

Special Loan Program for Small Businesses

Most small business loans are provided by banks that are conservative lenders. If your bank participates in the U.S. Small Business Administration loan program, you have a better chance for a loan, since it is guaranteed up to 85% by the U.S. government.

If you are looking for a small loan, up to $50,000 in 2011, the U.S. Small Business Administration offers a Micro Loan program. The lenders are local non-profit financial intermediaries funded by the U.S. government, and contact information for one near you is provided on the SBA website (sba.gov/content/microloan-program).

Since these financial organizations were established specifically to provide small business loans, your chances for getting a loan are better if you go through them, although your preparation for the loan is still required.

Resources

• U.S. Small Business Administration: Home Page