Last week was National Small Business Week, which recognizes the contributions that small businesses make in America. Many of those businesses get on their feet or expand their company with the help of a small business loan. While this process can seem overwhelming, here are a few steps you can take on the front end to get your loan application approved.
Get your paperwork in order
When you apply for a business loan, you will need to prove your financial wellbeing with multiple documents. Depending on the situation, you should be ready to show financial statements, tax returns, and bank statements. These papers will showcase your business’s performance history, thereby putting loan officers at ease with moving them through the process. These financials are needed for a number of reasons:
1. Demonstrating sufficient cash flow.
You need to be able to show that you can pay off the loan. Therefore, it’s vital that your statements confirm a solid cash flow with good prospects for the future.
2. Showing the ability to handle a manageable debt load.
A good indicator that you are a possible candidate for loan approval is whether you’ve handled debt well in the past, particularly with a positive payment history. You’re also going to need to show why you would like to add to your debt load with a new loan, and how it will provide for future revenue.
3. Proving you can overcome business fluctuations.
It’s inevitable that your business will have its valleys as well as its peaks. But how has your company handled that in the past? You also need to prove that you have sufficient assets and financial reserves to handle the changes of your business.
Prove that you have good business judgment
Financial statements are crucial to getting approved, but a successful loan application has a more well rounded approach.
1. Pitch your story.
Don’t just turn in your application and walk out the door expecting it to be approved. Help your loan officer to understand your company as a whole, not simply as a money making endeavor. This can shed light on important information that proves why you need the loan in the first place.
2. Create a business plan.
You need a solid and detailed plan to show how you anticipate running your business, especially if it’s a new endeavor. Be sure to include personal information such as education and bios. Many loan officers are also interested in seeing a marketing plan to anticipate how you plan to proceed after receiving the loan. If you’re a new business, include your projections and how you got to those numbers. It’s also a good idea to obtain and include accounting and legal advisors in your plan.
3. Hire capable management.
Demonstrate how the people you employ will be contributing to the success of the company. Management needs to be able to ride the tide of fluctuations of a business and overcome the obstacles that may arise.
As a small business without a national presence, you’re generally more likely to receive approval from a local bank versus a national one for several reasons.
1. Local decisions.
Community banks are incredibly helpful to small businesses, as their loan decisions are made locally. Your small business is not likely to be known by the decision makers at a national bank. Therefore, local bankers who better understand the intricacies of your market will handle the approval process of your loan.
2. Desire to see small biz succeed.
Local banks want to make loans to small businesses! As members of your community, they want to see other small businesses succeed.
3. Closer relationship.
At a local bank, your banker won’t simply be a phone number and an email address. They will get to know you as a person, not just an application, and you can expect to have better service in return.
This blog post was originally published on the Memphis Chamber Small Business Council Big Ideas blog.