Financing A Small Business

Owning a successful small business is a dream come true for many, but with so many small businesses ending in failure lenders do not give loans to everyone.  Nearly 50% of small businesses fail in the first year, leaving the owner in need of a debt relief program. In order to avoid debt and said programs you will want to know if you have what it takes to start a small business and make it a success.

Your Personal Credit Score

If this is your first time starting a business then lenders will be looking to your personal credit to decide whether or not to give you the loan.  If you have filed for bankruptcy or needed a debt relief program in the past then you will most likely not qualify for a small business loan.  However, if you have always paid your bills on time and do not have a large amount of debt then you will be more likely to qualify for the loan of your dreams.  Knowing where your credit stands will help when preparing your business plan.

Your Business Plan

Before you meet with lenders you will want to draw up a business plan.  This plan will include such information as what you will be selling, who will be your target market and how many employees you plan to hire.  Having all of this information mapped out will show the lender you are serious about your new business.  It will also show you are responsible and prepared for the future.

Your Collateral

No one wants to risk their home or savings, but lenders will want to look at what your own before handing you money.  The more collateral you have the more likely you are to get a loan.  Additionally, the more you offer as collateral, the more it shows the lender you are ready and willing to give everything to make your new business work.

Before the economy went into a recession and interest rates were high, it was possible that you could attain a small business loan with bad personal credit. These days, it is still possible, but much harder to get that small business loan. Although there are possible solutions out there for a small business owner with bad personal credit to get a loan, it is important to note that there is about five times more capital available to small businesses using business credit than entrepreneurs using personal credit.

Furthermore, you might as well start building your business credit now because you will be able to use it in the future to progress your company and let it grow into a bigger and better organization. Over the last ten years, especially with the sub-prime mortgage usage, many small business owners did not really strive to keep good business credit or go out and try to build it because they did not necessarily need to have proper financials and a good business credit score to get the loan solutions that were needed. Now, however, more and more small business owners are realizing that they made a mistake because now that they need a loan, they cannot get it easily.

What small business owners in this position have found is that although it would be much easier to get a loan with good business credit, it is still possible to get a loan solution if you search in the right places. One of the best places to look for a loan if you cannot get it by traditional methods (i.e. banks, other financial lending institutions), is at the Small Business Administration’s website, SBA.gov. Here, you can find that this government-run agency will not personally give you a loan, but they will guarantee a loan for you. Once they do this, it will be much easier to get a loan because in this situation, they basically promise the lending institution giving you that loan that they will pay back your loan back to a certain percent (usually 70-90%). The most popular loan the SBA offers is the 7(a) loan and it is important to research this in the future if you want to make sure your small business can be guaranteed for a loan.