Winning Business Loans: A Beginner's Guide

Business loans can be the crucial element that keeps a business going. Business loans can help fund equipment, operating expenses, real estate purchases and expansion. The key to scoring a business loan is to be prepared to show a viable business with a good credit history that will earn enough to pay back a loan. 

Loan Basics

Financial institutions, such as banks, are the most common place to get a business loan. Venture capitalists and other private funding groups also invest in businesses they see as potentially profitable. Business loans come in a variety of forms for several purposes. A business may need a set amount for a one-time purchase, such as real estate or equipment. Businesses can also get a line of credit, in which the borrower can draw money to help with operating costs for a temporary amount of time. 

The First Step to a Business Loan is a Business Plan 

A business plan shows the lender what the company does, what the business loan will be used for, and how the business loan will be repaid. This might be the first introduction the lender gets to the company, so it should convince the lender that this is a business worth giving money to. 

A business plan will include the following:

  • Executive summary that gives a synopsis of the business proposal and lays out the case for needing and being worthy of the loan

  • Goals for the company and plans on how to achieve those goals

  • Description of the main people and their experience

  • Defense of why the product is needed and how it fits into the market it serves

  • Marketing and promotion strategies in place or in the works to get the word out about the product

  • Financial projection for at least three years with documents to show what the projections are based on
Financial statements will be needed as proof, including tax returns and financial statements of the business owners. 

Good Credit Goes a Long Way

Lenders are looking for businesses, and the individuals that run them, to have a good credit history. Before applying for a small business loan, an applicant should check his or her personal credit score to make sure the credit is good. Any mistakes in a credit score should be corrected before applying for a loan. Any credit problems should be explained to the lender.

Build Relationships With Lenders

People are more likely to loan money to people they know. The same is true of a lending agency. A business owner should build relationships with banks or local lending institutions. This will make the lender more comfortable about giving a business loan to the business. To keep the relationship, a business owner should make sure to repay the business loan on time. To begin building a relationship, set up a bank account. Be sure to show good financial practices by not overdrawing or bouncing checks. 

Nothing Replaces a Stable Plan

Lenders want to give business loans to businesses that have a good history and a smart company vision for the future The applicant should give a clear idea of how the business loan will be used, and how that money will be paid back. Lenders will want to see:

  • business financial statements

  • budget projections for the next three years

  • business and personal tax returns

  • what the business has to offer as collateral