Pet & Animal: How to Get Business Loans

Getting a loan for your business can be challenging, especially in a tough economy. Here are some things to keep in mind when considering taking out a business loan.

Steps

Pleading Your Case

Prepare a business plan. You’ll be happy you did. Not only will this improve your chances of getting a loan, but it will provide a crucial framework for your company. The elements to consider in a good business plan include market strategies, competitive analysis, management structure, as well as financial and revenue models.^[1]

Get your financial documents in order. Lenders will want to know how well you’ve handled your finances before they feel comfortable enough to give you a loan. Be diligent about your credit score and any other financial matters that may be scrutinized.

Be precise. Just asking for money probably won’t get you a loan. Give an exact amount and then demonstrate for the banker exactly how the loan will be used. Just as important, explain how you plan to pay the loan back by generating future revenue.

Get a feasibility study done to give an overview of your plan and to demonstrate the potential markets you hope to engage in. This puts all of the pieces of your business plan together so it can be looked at by potential investors with a critical eye.

Tell the story of your business. Take it a step beyond the business plan and tell them why your company deserves the money. Highlight past successes, where you plan to grow, and whether or not there have been any major advancements in your field that you are primed to take advantage of.

Tell your story. Explain any pertinent information about your personal work or entrepreneurial history that demonstrates your ability to be a success. Show them that you’re someone that they can trust with the money.

Asking the Bank for a Business Loan

Understand how a traditional business loan works. There are many types of loans and you need to make sure you find the right one to suit your needs.^[2]
- Term loans are generally considered your standard business loan. They'll have fixed terms, 36 months for example, and begin with a high balance which is usually the loan amount. Payments made will go to both the principal as well as to interest.
- Revolving loans are essentially lines of credit for businesses. You start with a limit, but no balance. You then draw from your limit, thereby increasing your balance, and you can keep drawing until you max it out. These loans are generally short-term - possibly under 12 months.
- Asset based loans are for large purchases of physical assets like equipment or real estate and can have terms that match the useful life of the assets.

Shop around. Just because a bank may have approved you for a loan, this doesn’t mean your work is done. Speak to some other banks and let them know the offer you received. They might be able to offer you a better deal, and the fact that you’ve already been approved with one bank could make you look more attractive to another.

Establish a good track record with your bank. If you have an existing relationship with a bank, it may be in your best interest to continue working with them rather than jumping around from bank to bank. It will be easier to get future loans from a banker who knows you and your financial history.

Applying for a Line of Credit

Know what to expect from a line of credit. This is different from a loan and is quite similar to having a credit card in that you’ll have a limit which you borrow against when you need it. You will make monthly payments based on the your spending. The process of applying for a line of credit from a bank is very similar to the process of applying for a loan, but you should keep in mind that the interest rates are typically much higher with a line of credit.

Shop around. Just like when looking for a loan, it’s in your best interest to shop around and find the best deal for you. You can get approved at the first bank you visit, but you may find that another bank offers far more reasonable interest rates.

Knowing Your Options

Look into the Small Business Administration. As the name implies, the SBA is designed to help small businesses. One way they do this is by offering a variety of loans which you can learn about here. They can also help by directing you to banks that offer loans guaranteed by the agency. One downside to the SBA is that the application process can be long and arduous.

Work at the local level. The benefits of working with your local bank typically include lower interest rates, long repayment plans, and they may be running some SBA programs. Also, as noted before, it doesn’t hurt if you’re approaching an institution that knows you and your financial track record. Downsides to this include lengthy paperwork and bureaucratic process.

Looking for Personal Loans

Get loans from friends and families. One very large advantage to this is that you could set far lower interest rates and more lenient repayment plans than you could with any financial institution. However, keep in mind that borrowing money from people with whom you have a personal relationship is risky on a different level. Failure to pay on time or any other dissatisfaction could put unnecessary strain on your relationship.

Approach investors. If you’re looking for more money than your friends and family are able to provide, then you may also want to consider more serious investors. Angel investors may be able to give you the money you’re looking for, but in return they will most likely want equity in the company, a great return on investment (ROI), as well the knowledge that you have a very solid business plan staked out for at least the next five years.

Find a partner. You’ll have to share the spoils, but someone with a substantial amount of money to help fund your business could be invaluable. Bear in mind that this is not an arrangement to be entered into without some forethought. Determine how you will divide the workload and make sure you have drawn up specific legal documents that outline everyone’s role in the company.

Checking Online

Search for websites that specialize in private loans. Just as there are social networks to link friends together, there are several sites that specialize in linking lenders and borrowers. A benefit to these options is that you will typically find individuals and other small companies, as opposed to banks, that are willing to lend you capital.

Raise money online. Crowd-sourced funding is becoming a very popular way to raise money. Fundraising sites allow you to make a profile and accept donations from a community of investors. A big benefit to this is that you can develop a loyal following within the community who are all eager to see you succeed. Keep in mind that most sites will take a percentage of the money you’ve raised.