Credit is tight, no doubt. But lenders make money by lending money, not by saying "no." Your job as a borrower for a startup or small business is to help your lender say "yes." Here are some tips on how to get loans — even in today's economy.
1. Build trust. Trust is the belief that you can predict another person's behavior with a certain degree of confidence. Predictions of future behavior are mainly built upon patterns of past behavior. The more stable the pattern, the greater the trust. So - do business with the same lender for a substantial period of time, and do it often. Even when you don't particularly need to borrow, borrow a bit and repay it reliably. Count the interest you pay as an investment in trust.
2. Perfect your written business plan. A cogent, deeply detailed business plan gives a lender many reasons to lend to you. It tells him or her you know what you're doing. (You do, right?) It helps the lender understand not only your company but also your industry, your customers and how your market operates. Conservative, logical cash flow projections show lenders exactly how you intend to return their investment. Contingency plans should detail how you will repay on time, even if something goes wrong. You should know all of these things anyhow, so put them on paper and use them to help your lender understand your short and long-term goals.
3. Borrow exactly what you need. If you ask for too much money, it will be difficult to explain to the lender how you are going to use it all. It will also be hard to get a substantial enough return on the loan to make reliable payments. That's a big red flag. But trying to rewrite your business plan to fit the size of the loan you want will lead you to including "uses for funds" that make no business sense, and again, lenders will turn you down. On the other hand, asking for too little money can leave you short of the ROI necessary to support repayment. Lenders can spot that error, too.
4. Find the right lender for your business. Some lenders focus on lending to small businesses; others don't. Some will lend to a business without even knowing what it does, going strictly "by the numbers." Others specialize in particular industries, so they have a deep understanding of your challenges and provide funds to accommodate them. Some focus on community-oriented businesses, others seek borrowers with global markets. Some lenders have social agendas: ethnicity, gender, "greenness," fair trade, whatever. Your odds of getting a loan approved are better if you apply to a lender who shares your business values and characteristics.
5. Don't be too proud to take government "handouts." It used to be your money, remember? Government grant and loan programs are there for businesses that need them to grow, sustain themselves, and ultimately, pay more taxes. You wouldn't be trying to borrow if you didn't need the money, and that's why those programs are there. "We take refuge in pride because we are afraid to tell the truth to ourselves," wrote Kakuzo Okakura. Never let your ego interfere with your success! Find a lender or financial adviser who knows the red tape of government lending programs and can make the process as painless as possible.
6. Take your hat out of your hand and the chip off your shoulder. Too many people beg for loans instead of showing why they deserve them. Don't cringe in front of a lender saying, "We had a disappointing quarter" with an apologetic smile on your face. Be excited about your company's future instead and make the lender want to be a part of it. Another mistake people make when applying for a loan is to act like it's owed to them. "I've banked here for 99 years; you'd better lend me money!" Be positive, but not starry-eyed. Be persistent, but not belligerent. Be persuasive, not pathetic or intimidating.
7. Neatness counts. Your loan application package will be easier for the lender to swallow if you serve it up in tidy, bite-sized pieces. Make sure it's typed. Anticipate the lender's questions and put your answers in a logic order. If your past tax returns and other records are dog-eared, make crisp new copies. Go through your documents and pull out whatever does not pertain directly to the lender's questions: don't make him or her hunt through IRS worksheets to find the numbers he wants. Use a highlighter.
Your first business loan is usually the toughest to secure. Put all of these tips to work, and you can more easily establish your business credit.
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