Where can I get loans for my small business?
Funding for small businesses is often done through loans and equity. Equity is that part of the capital or money required for the business that you put up from your own pockets and the rest you take from outsiders in the form of loans. There are various sources like banks, venture capitalists, insurance companies, private individuals and organizations like US Small Business Administration that provides you loans for your small business.
What are the banks going to ask me?
Getting loans is not always easy and there are a host of questions to which you must provide answers before being considered by a bank or any other financial institution for a loan.
10 questions that the banks will ask before lending you money:
1.Can the business that you are considering to enter into generate enough money to pay off the interest on the loan?
2.If the business fails then do you have the capacity to pay off the interest yourself?
3.What is the history of the business? The lending institutions will be interested in how the easy business funding has evolved over the years and how well it has been performing in the past. The past is considered to be a good indicator of the future and chances are that if your business has done well in the past you will find it easier to obtain the loan.
4.What is the background and history of the managers and how committed are they to the business? The one criteria that makes or breaks a business is whether the management is committed and capable enough to steer the business in the right direction.
5.Are the sales growing? It is important for any business to grow its sales and especially a small business where the base is smaller and the lenders are certainly going to pay attention to the growth rate of the past few years and the future outlook.
6.How profitable is the business? While you may think that the lenders are only interested in getting their repayments their success is dependent upon your success and to that extent the profitability of your business is crucial.
7.What is the competition like? Lenders would not like to loan out to a small business which has bigger and more intense competitors with deeper pockets.
8.Is the industry itself growing? If you are operating in a profitable and growing industry then the chances of your getting a loan also increase that much.
9.Is the cash flow smooth? Cash flow is to business what blood is to the body and you should have a smooth cash flow to pay all your bills on time, pay your employees and keep the ball rolling.
10.The banks will also look at your past credit history and how you have performed with the loans that you may have taken in the past.
What are the things for which I will get the loan?
There are many aspects to a business even a small one and you get different types of loans tailored to suit each kind of need. For instance you get loans for working capital, buying capital equipment, expansion programs, installing new machinery and computerization etc. You get loans for almost any type of needs that arise provided you have a good case for it.
What is the amount and rate of interest of the loan?
Different institutions have different ways of evaluating the amount that they will pay you. Indeed in cases of venture capitalists entire 100% is also funded for your small business. If possible it is always better to have as much equity as possible in your business for two reasons. One is when the prospective lenders themselves see that you are putting your money in the business their confidence in you increases and secondly your interest outgo also reduces making your profitability that much more as your interest expense is lowered. The interest rate hovers but if you take the loan from the US Small Business Administration it will range somewhere between 8 and 13%.
There are various means and ways of getting loans for your small business and you must persevere at getting the right loans that suits your needs and gives you the best interest rates and repayment terms.