How to Get a Small Business Loan

A Home Business Article Contributed by Alina Sandor

Small Business Loans

Borrowing money from a bank is one of the most common ways of funding a small business, but getting a loan isn't always easy. Before you try to get a loan, it is a good idea to understand the factors the bank will use to evaluate you for a loan. Here are some things to think about before you head off to the bank and ask for a loan.

Your Credit and Your Small Business Loan

Banks usually look at credit first. Before you think about getting a loan you need to make sure your credit is good enough or else you are waisting your time. No bank will give money to a person with iffy credit.

You can get a copy of your credit report by calling TransUnion, Equifax, TRW or another credit bureau for a fee. It is important that you do this well in advance of seeking a loan because your credit report may have errors or be out of date. You'll need time to get these fixed before you apply for a loan.

Your credit report will show if you are good at paying back debts, if you are late paying your bills, etc. All this is all important to know if the bank is going to give you money.

Find out What Documents are Needed for a Small Business Loan

When getting a small business loan, you need to make sure you have all of the documents you need to convince a lender that you have what it takes to repay the loan and that they'll get their money one time.

The first thing you will need is a business plan. A business plan shows the lender not only why you want a small business loan but what you want to do with the money. The bank will check your ability to pay off the loan next. Banks want to see two sources of repayment, such as cash flow from the small business and a secondary source such as collateral and you need all of this paperwork for them to see at your first meeting. This is why it is important to have a solid business plan put together to show how much you expect to make and your projected expenses.

Banks also want to see a certain amount of equity for a small business. Equity can be built up in a small business through retained earnings or the injection of cash from either the owner or investors. And most banks want to see that the total liabilities of a small business is not more than 4 times the amount of equity, so, if you want a loan, make sure that there is enough equity in the company to leverage that loan. You will want to have proof of any equity you have to show the banker.

Also remember to bring any past tax documents you may have so that the bank will know how your business is doing financially.