By Dixie Somers
As a business owner, obtaining the necessary funds to support the business is one of the biggest obstacles that stands in your way. While fundraising and crowd-funding efforts can help, most small business owners will need some kind of loan to help the business get off the ground and gain some traction. As of late, there has been a lot of criticism in the media regarding shady business lending and borrowing. Unfortunately, many accounts of dishonest borrowers and lenders have surfaced, which has many business owners worried about obtaining a legitimate loan for their company. If you are an honest, hardworking entrepreneur, it is possible to obtain a good loan while doing everything above board. Keep reading for a little advice to help you avoid shady borrowing, and get the funding your need for your small business:
Legitimately Justifying the Loan to a Lender
The first thing you need to remember is that you need to justify the loan. This means that you must prove to the lender that you are capable of paying the loan back. You should have at least a good understanding of your cash flow, your financial status and your current debt load before starting the loan process. If, for instance, you have already been in business for a while and have managed to go on your own, then you should have a good record of your financial statements and other documentation to help the leader with his/her decision.
How to Find a Reputable Lender
So, once you’ve obtained all the proper information, how do you find the right institution that will lend you the money you need to run your business? The Small Business Administration (SBA) has a number of programs for small businesses to help them research lenders in their area. The SBA doesn’t directly loan money to entrepreneurs but provides a guarantee to banks and other institutions that lend money. Lenders that work with the SBA are reputable institutions, but you should do your research to make sure of their reputation.
Research Potential Financial Institutions
Using the SBA database and/or another method, there are three things you should look for while researching financial institutions. You should make sure the bank is FDIC insured, that they service your type of loan, and that they are willing to work with you. When researching, a red flag for suspicious lenders is if they don’t have the familiar FDIC logo on the website. Be sure to look carefully and determine whether the institution is FDIC insured before moving any further.
Utilize your Business Plan and Gather all Your Documentation
You should have a relatively good understanding of where you see your business going in the next five years before filling out the required paperwork on your loan. Your documentation should include financial statements, cash flow, revenue and P &L statements and current debts. Your business plan should have a section for this information. Before you send any personal information over the Internet, it would be prudent to call and speak to the lender. You are looking to find out if the lender will work with you, what loan programs they have in place, what you need to do in order to obtain the loan, and what fee structure they have in place. If the person appears too vague about their services or you suspect that there’s something wrong, then trust your instinct and steer clear of that institution. You should also make sure that the institution runs a secure website by noting the https and lock, the password protected area and any images they use.
Reputation is a Two-Way Street
It is easier to get a small business loan from someone who knows you, rather than someone who doesn’t know you. Your reputation as a small business owner says a lot about you. Lenders are looking to do business with people they can trust with their money. Consequently if you don’t know about the lender’s reputation, you’re less likely to do business with them. A good bank and institution will have a good reputation for helping small business owners like you. Lenders are looking to see if you can pay back the loan and are not a risk for defaulting on it.
Prepare to Prove Yourself
Showing your lender how you plan to market your product gives him/her the sense that you have thoroughly done your research on your market. Lenders need to know that you will be able to repay the loan and have a good solid plan to make a profit. What you want to watch out for is lenders and competitors that use your ideas for their own benefit. When you know you have a reputable lender who won’t steal your ideas, you can divulge more detailed information that proves you are prepared to run this business.
Obtaining a good business loan from a legitimate lender is no short process—it takes preparation, research, and good instincts to find the right lender and loan for your business. Rushing the process will only result in mistakes and regrets. With proper planning and research, you can form a strong bond with a legitimate lender who is looking to help your small business. The information for this article was provided by the professionals of Power Finance Texas in El Paso, who specialize in payday loan services.
Dixie Somers is an Arizona-based freelance writer. Follow her @DixieSomers.