Obtaining financial support from outside sources for the establishment and maintenance of a small business can frequently prove frustrating for new entrepreneurs. A flood of red tape and lengthy applications can cause even the most determined small business owner to want to throw in the towel at getting a small business loan. This doesn’t have to be the case.
There are many ways to get a small business loan. Many of which, unfortunately, do involve filling out mind-numbing and detail oriented requests, but not all of them. Here are a couple of ways that may get small businesses that much needed funding.
MONEY FROM THE SBA
SBA is short for the Small Business Administration. It is a federally run program started in 1953 that offers valuable resources for entrepreneurs wishing to start or increase a small business. The U.S. SBA offers services to the inhabitants of the United States, Guam, the U.S. Virgin Islands, and Puerto Rico.
As this is a governmental program, there are steps which must be taken before, during, and after the application process to ensure the best chances of acquiring a loan. Requirements must be met and specific details as to the nature of the business involved must be disclosed. A basic outline of acquiring a business loan through the SBA is shown below.
- Create a business plan.
A business plan is required by the SBA to be included with any application for a loan. Without it, the application will go no further than the front desk. To better the chances of success, submitted business plan should appear professionally done and should always include accurate and up- to -date information regarding the business desiring funding.
- Go to your local lender.
Once a business plan is established, it is necessary to take it to a local FDIC bank and consult with an ordinary lender. During an interview with the bank, most loan officers will either fund a business through the bank itself, or direct your application process to the SBA. If passed on to the SBA, the local lender will share important contact information, a credit analysis and the completed application with an SBA agent.
- When received by the SBA, the loan application and business plan will undergo strict review. At this time, collateral and credit score play a pivotal role in the acquisition of a low interest micro-loan or guaranteed loan. If neither has a high ratio, the loan will be denied. If credit and collateral ratios meet the SBA’s requirements, funding can be approved within a matter of days, but may take as long as 30 days for a response.
MONEY FROM A PRIVATE LENDER
Often, a traditional lender or the SBA fails to recognize the value of a new business. Collateral issues and poor credit may also negatively affect the outcome when applying for financial aid through more conventional methods. If this be the case, approaching an already established business owner or investor with your loan proposal may be an option.
Whether it is a close friend, relative, or individual within the business sector of your community, be sure to use the same manner of advancement used when applying for an SBA loan. Potential investment partners are more apt to fund a project when they know what the business is, what income it will generate, and how long until the money is paid back.
Here are a few things to bear in mind when approaching a non-traditional lender.
- Treat the private funder as though they were your bank. Provide them with a professional business plan and a well conceived proposal for why they should give you money.
- Be prepared to approach many individuals. There are situations when an investor is willing to contribute, but may not have access to the amount of funding you require. In this case, multiple investors may be needed to acquire additional amounts of money.
- Warm up to the idea of a silent or active partner for your business. Some lenders may stipulate that once they become an investor, they may become a legal partner to the business. This is an uneasy thought for many entrepreneurs as they dislike the idea of anyone else having authority within their business.
Whether seeking funding through conventional means or through private sources, getting the money needed to maintain or start a new business can be difficult. It is important to remember that in business, rejection is often a part of the process and should never be an obstruction for achieving small business goals.