A Guide to Applying for a Small Business Loan

When you have started a small business, it becomes almost mandatory to look for a small business loan from a bank in order to ensure that the business is able to invest in ways that allow it to develop. Quite often, unfamiliarity with the methods and requirements for obtaining such a loan becomes a stumbling block. The following information should help make applying for a loan just one more part of the process of running a business.

Essentials for the Loan

You first need to decide whether you have the collateral or assets that can back up a loan or whether you would prefer an unsecured loan.

Be familiar with the loan requirement that the bank may have in order to get the loan. Banks have different rules, and you may need to look around to see which bank suits you.

Be sure of all the documents that you will have to present to the bank and the documents that you may be asked to sign. This way you will be well prepared.

Be prepared to look for alternatives in case the bank is reluctant to give you the loan.

Going forward to Secure the Loan

You will be starting or will have started the business based on some understanding of the finances needed to keep it afloat. You will also have a fair idea of the assets that you could put up as collateral for a loan. See that such assets are properly valued and that such valuation will be acceptable to a bank. Once you are in a position to offer collateral, the interest rates that the bank will charge may become more reasonable. If you have no collateral to offer, the interest rates will be higher, and you will need to convince the bank of the viability of your business. To do so, you will need to present a report that is backed up by facts and figures that the bank can crosscheck.

Every bank has its rules regarding small business loans, and it would be in your interest to go through all these rules in detail so that you have a thorough knowledge of the conditions laid down before you sign any documents. If the rules do not suit you, look around at other banks. Advice from your local small business association may help you here.

Arrange to meet the bank officials at a time when they can spare enough time to examine your proposal in detail and also give you enough time to make your case. Avoid days on which other financial matters would take precedence in a bank. The beginning of the month or week is best sidestepped. Have your own documentation regarding your business and its prospects well laid out. This should be short, informative and backed up by details if necessary.

A bank will require you to sign certain documents before they disburse a small business loan. Asking for clarifications is a must if there are clauses that you have not understood. It is better you get the explanations now than have them thrown at you later when you have already committed yourself.   

Have a contingency plan for the financing in case your loan is refused. This will greatly strengthen your hand and will keep any desperation out of the interview you have with the bank officials. It is quite likely that such outside financing may be costlier, but at least it would allow you to go ahead with your business.

Above all, approach a bank only after you have obtained a good credit rating. This in itself will make the bank more willing to give you that small business loan.