Small Business Bank Loans: 3 Things To Know

When in the market for a small business bank loan there are three things you should know. First, you should be aware of the SBA and what it can do for you, second, you should know the five C's of loan seeking and third, you should know what it means to be over prepared.

#1. Are You Aware of the SBA?

If you are attempting to start, purchase, or inject some fluid cash flow into an existing small business, then it would be criminal for you not to be aware of the Small Business Association. This is a government agency designed specifically for helping small businesses and prospective small business owners. It does not provide loans directly. Rather, the SBA offers large percentage guarantees on loans to lenders so that they will not be so hesitant to offer loans to prospective and current small businesses. Loans guaranteed by the SBA usually boast lower interest rates that are pegged to the prime rate, longer terms and lower monthly payments and the absence of hidden fees, balloon payments and penalties. Being aware of this and other institutions aimed at helping small businesses provides no small benefit.

#2. What Are The 5 C's Of Seeking A Small Business Bank Loan?

The 5 C's are capacity, capital, collateral, conditions, and character, each of which are factors that bank lenders will meticulously scrutinize when you come seeking a small business bank loan. Let's look at each of them in turn.

Your capacity to repay the loan means that lenders will attempt to determine the cash flow of your business, the length of time and schedule of the repayment, and your personal and business payment histories.

Your capital will be examined, meaning the money that you have personally invested in the business. Along with your equity, lenders view your capital as a demonstration of your commitment.

Your collateral will be reviewed as a possible contingent source of repayment, a certain amount of which is required as a security on almost all SBA loans.

Your conditions will be considered, meaning bank lenders and the SBA will ask about the purpose of the loan and whether it will be used for working capital, purchasing equipment or for adding inventory. Furthermore, they will consider the relevant conditions of your industry and the local economy that could affect your success.

Your character will also be examined, which is when lenders size you up personally to determine whether or not you are trustworthy. Your education, work experience, quality of your references and the background and experience of your employees are all things that they will consider in offering small business bank loans.

#3. How Can I Be Over Prepared?

Being over prepared means knowing not only the ins and outs of your business but also those things your lender will want to know. If you are seeking to purchase a small business or inject one with funding, being over prepared means having a detailed business plan as well as the business's payment, sales and bill collection history and its inventory control practices. If you are seeking to start a small business, then you should have a business plan as well as a thorough knowledge of the local market trends and competition that you will face and a detailed outline of how you will face these hurdles.