Compared to just two years ago, banks expect to see stellar credentials, in particular an above average credit score.
Still, a would-be entrepreneur can still make a strong case for a business loan by employing these smart strategies.
Put Together a Solid Business Plan
Without a comprehensive business plan in writing, most banks won’t even entertain a conversation about making a loan.
A good business plan should take several weeks to craft. It should include a precise description of the business and an in-depth breakdown of start-up and operating costs. Banks are also going to want proof that a business can be profitable, making it crucial to research local competition and the need for the product or service.
Nonprofit organizations like SCORE offer free help crafting a business plan. The organization also has free templates on its Web site.
Contribute Some Personal Money to the Business
Banks want to see that an entrepreneur believes enough in the business to risk some of his or her own money. Anyone who doesn’t have enough savings to contribute to start-up costs may need to consider borrowing against retirement funds or taking out a home equity loan. Those are tough decisions to make, but they’re sometimes unavoidable in the current economy. Anyone who is unsure about whether it’s safe to involve personal finances should consult a financial expert.
Banks will also want to see that a new business owner has enough cash on reserve to make ends meet for a few months if the business hits a slump. So it's a good idea to factor in some extra "cushion" money when crafting a business plan.
Consider a Loan Guarantee Program for Small Businesses
Banks like to take on as little risk as possible, particularly in the current economy. Organizations like the U.S. Small Business Administration have programs that guarantee business loans, absorbing some of the risk from the bank. Especially in the throngs of a recession, banks are more likely to approve a business loan with this added assurance.
Approach Community Banks First for a Business Loan
Unlike the big national banks, most smaller community banks were never involved in the kind of subprime lending that caused widespread constriction of the credit markets. Most of them have money to lend and are still making loans. That’s not to say that local banks haven't tightened their lending standards, but the chances of getting a loan are better because they're not as plagued by bad debt.
Ashley Smith - I am currently the business editor of The Telegraph, a daily newspaper in Nashua, New Hampshire. Prior to that, I spent nearly four years ...
