How to get a small business loan

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So, you want to know how to get a small business loan? There will be a time when all businesses need some kind of capital injection in order to trade. It doesn’t matter whether the business needs working capital, new plant and machinery, a new property or cash to expand in to new markets, the time will come when the business is going to need a loan. If you want to know how to get a small business loan as quickly, effectively and cheaply as possible read on to ensure you manage to get the best deal possible.

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How to get a small business loan – calculate how much money you need

Calculating the amount of money you need for your small business venture may seem like an obvious point but it is something that many small business owners seem to forget to do when they first apply for a small business loan. In order to get a loan you need to know precisely how much you need and communicate this to the financier.

Simply plucking a figure out of thin air is not good enough, so you are going to have to take a more scientific and methodical approach. The approach you take should depend on what you are going to spend the money on. For example, if the money is going to be spent on a large piece of machinery a written quote from the supplier will suffice. If the cash is going to be used as working capital and to fund day to day business activities you are going to have to devise some cash flow forecasts and budgets to identify how much cash you are going to need to keep the business going.

How to get a small business loan – Write a business plan

In order to get your loan application through the banks credit department the bank manager is going to need some kind of business plan so you need to draft your business plan before you even think of going to see the bank manager. The level of detail you need to go in to in the business plan depends on a number of different things, including the complexity of the business and what the money is being used for. As an absolute minimum the business plan should include a the contact details of the business, the business environment, major customers and suppliers, how the business operates, the amount of cash needed and what the cash is going to be used for and some historical financial information, such as financial statements, cash flows, budgets and management information.

Writing a simple and basic business plan is not difficult and it is something you should be able to do yourself. For more complex business plans you may want to go and get some professional advice from your financial advisor or accountant.

How to get a small business loan – Do some research

With the business plan drafted it is now time to do some research and look for current deals. In days gone by a business would go straight to the current bank manager in order to get a small business loan. However, times have changed.

You can still go to your local bank manager to get a loan and he may be able to offer the best small business loan. However, if you are out on the high street anyway, why not go to several different banks and see what they have to offer? After all, in these tough economic times you don’t have to be loyal to your current bank and you should use the bank that offers the best deal which may or may not be your current bank. In these tough economic times, money talks and you don’t owe your current bank anything so get out there and actively search for the best deal to take. Spending a little more time could end up saving you a lot of money.
As well as going down the high street try surfing the internet for some good deals. There are plenty of loan comparison websites you can use to seek out the best deals, and this process won’t take you very long at all. Simply tap in the details and you will be presented with a list of current offers that you can drill down, analyse and compare and all with a few clicks of your mouse.

How to get a small business loan – Devise a short list of potential financiers

By carrying out a bit of research you will be able to devise a short list of potential lenders. Ideally, your short list should have three to eight different financiers on it. You need a few just in case your small business loan application is rejected by some financiers.

How to get a small business loan – Meeting the lenders

When an individual applies for a personal loan it is often unnecessary to have a meeting with the bank manager, however this is not the case when a business applies for a small business loan. When you apply for a small business loan you will have to go and meet with the bank manager, and present your business plan.
Before meeting the bank manager you need to prepare for the meeting. You need to be able to communicate your business plan effectively and demonstrate you know exactly how much cash is needed, what the cash is going to be used for and how the cash will be repaid. The bank manager needs to be comfortable the business can repay the loan and that you know exactly what you are doing, so be prepared to demonstrate this.

If you don’t prepare for the meeting you are unlikely to answer the questions properly and demonstrate you know what you are doing. If the meeting goes badly you will not get the loan, even if the historical financial information shows the business can comfortably make the loan repayments.

How to get a small business loan – Personal guarantees

If the small business is a separate legal entity, such as a limited company, the bank manager is likely to need some personal guarantee from you in your capacity as the director. The bank is going to want some kind of security, such as a fixed or floating charge, and if the business doesn’t have enough assets for security the bank will want you to put up some assets. You need to be prepared for this. If the bank manager requires a personal guarantee and you refuse to provide it the small business loan application will get rejected, simple as.

How to get a small business loan – to recap

No one wants to be ripped off right, and this includes you. When you are looking for a small business loan you need to ensure you are getting the best deal possible. Loans are expensive and interest charges are high, even though the bank base rate is at an all time low. In order to get the cheapest loan you are going to need to shop smart. If you want to know how to get a small business loan as cheaply and efficiently as possible follow the above steps and you should be fine.

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How to get a small business loan, Seekyt
General Contributor
Janice is a writer from Chicago, IL. She created the "simple living as told by me" newsletter with more than 12,000 subscribers about Living Better and is a founder of Seekyt.