Small Business Administration statistics indicate that small business owner loan approvals are on the decline in 2012. Fewer small businesses are being approved for loans and those that are approved typically receive less than the amount applied for. Why is this?
First, many business owners fail to understand that proper preparation is absolutely critical before applying for a loan. All too often a business owner walks into a conventional bank asks to see a loan officer and begins to explain that a loan is needed and expects positive feedback without presenting any detailed information about the business. Unfortunately, in today’s difficult economy the rules have changes and it’s just not that easy. That was the old days when you could walk into a bank and walk out with a check in hand.
Before applying for a loan do some self assessment and be honest with yourself. How is your personal credit score? Yes, lenders will look at it. Why? How you handle your personal finances shows a lender if you are responsible and pay your debts timely and it says a lot about how you will pay your business loan. Is your business stable, growing, losing money, how long have you been in business? You have to examine your business financial health and realistically look at it from a lenders point of view not yours. This self assessment is the first step in understanding the possible challenges you may have in getting a loan approved.
If you haven’t already built a relationship with someone at your bank start doing that immediately. You should bank where you can get all the services necessary to serve your business and personal needs. If you’re at the wrong bank then change that as soon as possible. There is nothing worse than going for an SBA loan to find out your bank doesn’t do them. Introduce yourself to as many people in the bank including the loan officers even if you’re not looking for a loan at the time.
The preparation of a business plan is a requirement for a loan approval. It is very likely you will not be considered unless you have a solid set of projections that include: A balance sheet, income and cash flow statement, list of assets or collateral pledged as security (including your personal financial statement assets), and purpose, use of the loan and repayment terms clearly demonstrated in your projections. Other information may be requested (personal and business tax returns etc) but this is the bare minimum required. Your business plan should also have an Executive Summary and information about your business etc…to tell your story.
Finally, unless you are an expert in finance or have someone on staff qualified; get a professional to review everything for objective feedback. It can be embarrassing if your projections show inaccuracies. It’s well worth the money to have an expert review and go to the bank with you to present your information. It will add creditability to the process and relieve you of a ton of stress.
The bottom line is that getting approved for a loan is not an easy process unless you’re a thriving business. In that case, you may not need a loan unless you are expanding. You must be prepared when applying for a loan if you expect a lender to take you serious. Businesses that are getting loans today are prepared and do their homework!