Small Business Loan Speak-Know What Your Agreement Means

A Home Business Article Contributed by G. Uma Bennett

Small Business Loan Speak-Know What Your Agreement Means

When you apply for a small business loan, there are several terms that will affect what is expected of you and how much you pay. Make sure you understand what you are agreeing to before you sign on the dotted line. An unsecured loan requires no collateral, but a secured loan requires does and a creditor may foreclose and seize the specific property that is collateral to satisfy an unpaid secure loan. A fixed interest rate stays the same for the term of the loan, but a variable interest rate is pegged to the market and changes over time.

The Art of Persuasion in Getting a Small Business Loan

Let's turn the tables for a minute and someone comes to you asking for a small business loan. Most likely the first thing you want to know is what is the money for and secondly, when will you be repaid. Lenders think along the same lines. To persuade a lender to listen with an open ear, your professional business plan presentation that includes charts and graphs is key. You need to be fully in tune with both sides of the argument in order to convince the lender that you are a good risk and will put the money to good use.

Change is Sweeping Through the Small Business Loan Industry

Traditional means of getting a small business loan meant hours of researching and writing a business plan. The pace of our society and information technology is quickly changing this and more business owners are seeking "plan-free" means of obtaining financing. Now, the decision of loan approval is being determined more often by a computerized credit scoring program unless the funding request is over $100,000. This approach has several advantages; you save money and time by eliminating the business plan and you get access to your money faster.

Applying for a "Plan-Free" Small Business Loan

If you choose the "plan-free" route when you seek a small business loan, look to the large banks for credit scoring methods. Make sure you check your credit report before hand and correct any errors or omissions. If the amount needed is closer to $100,000, apply for $110,000 or more. Make sure you provide accurate industry codes and description of your business. The bank may use SIC codes, an inaccurate coding can alter the outcome of the approval. Consider the type of bank you select when applying for the loan.

Small Business Loans and Plan-Free Risks

Deciding between using a business plan or not when you apply for a small business loan depends on how comfortable you are with risk. Small banks usually require a business plan, if you have an established relationship with a banker, the time and effort to make your presentation there. If time is of the essence and you have an excellent credit rating, you might benefit from the credit scoring method used by larger banks. The downfall of the plan free method is that you may lack the in-depth scope that a business plan brings and can place more risk on your business decision process.