BBB advice to increase your chances of getting a small business loanFinding funding to start a business or bolster an existing one has been more difficult than usual lately.
Finding funding to start a business or bolster an existing one has been more difficult than usual lately. While the economy improves, banks are still reluctant when it comes to lending money to small business owners and the Better Business Bureau of Minnesota and North Dakota (BBB) recommends developing a solid business plan to earn the bank’s trust and increase your chances of landing a loan.
According to a recent survey by the Federal Reserve, small business owners are still having a hard time getting loans. Only 2 percent of banks surveyed had loosened their standards for making commercial and industrial loans, which was equal to the number of banks that had tightened their standards further.
“Any steps you can take to make your loan seem less risky will ease the bank’s fears about lending to you and increase your chances of getting financing,” said Dana Badgerow, president and CEO of the BBB. “This includes creating a comprehensive business plan and devising a solid strategy to pay the bank back.”
To increase the chances of getting a loan, the BBB recommends that small business owners and entrepreneurs:
Talk to the U.S. Small Business Administration (SBA) or its free counseling partners. Talking to a counselor or lender relations specialist can help increase your chances of getting a small business loan. The SBA has lender relations specialists who work at field offices in every state.
The SBA’s partners can also help and include about 900 Small Business Development Centers at colleges and universities, about 100 Women’s Business Centers and a network of about 10,000 retired executives (called SCORE) who mentor entrepreneurs and small business owners. Generally, all of these counseling and training services are free.
Review your credit report. Lenders will take into consideration your personal credit history and if your report has any errors it could affect your chances of getting the loan. You can check your credit report once a year for free with the three major reporting bureaus – Transunion, Experian and Equifax – at www.annualcreditreport.com. If you find errors, contact the reporting bureau to set the record straight.
Create a comprehensive and professional-looking business plan. Lenders want to know that you have done your research, considered your risks and the current climate for opportunity and planned for the future. Thoughtfully and thoroughly explain how much money you need and how you’ll use it. Put care into the final product, not only in the content, but also how it looks. You want to put your most professional foot forward and that means preparation, attention to detail and a polished presentation.
Show that you’re personally invested. If you have money invested in your own business, it will show the lender that you are personally dedicated to the success of the venture.
Plan to pay it back. Banks are in the business of making money. To that end, they want to know that you have a solid plan for paying back the loan and can also provide enough collateral to cover the loan if the business fails.
Start with who you know. If you already have a good relationship with your personal bank, start your search there. Ideally, your lender also works with the SBA, which will widen your loan options. Don’t rule out the possibility of getting a loan from a smaller local bank.
org/us/Business-Resources/ for more advice you can trust on managing your business.
The mission of the Better Business Bureau is to promote, through self-regulation, the highest standards of business ethics and conduct; and to instill public confidence in responsible businesses through programs of education and action that inform, protect and assist the general public. Hours of operation are 8 a.m. to 5 p.m. Monday through Friday. Contact the BBB at www.bbb.org or (651) 699-1111, toll-free at 1-800-646-6222.