While there are many possible avenues for funding your business’s growth, today I want to focus on loans. A bank is often the first stop for entrepreneurs seeking start-up capital and an ongoing source of short- and long-term financing for businesses large and small. A bank can finance all of your asset needs, including working capital, equipment and real estate.
Applying for a business loan might seem daunting, but a little preparation goes a long way in the application process. You can improve your chances of getting that much-needed infusion of cash by paying attention to the following factors, which directly influence whether and on what terms you qualify for a business loan:
Solid credit and tax payment history. A strong credit report shows your credit worthiness and ability to manage your finances. If there is a life event that might explain a poor credit history, supply all information to your bank officer or ask for advice on how to “repair” your credit history.
Ability to repay loan. You need to show that your business is profitable enough to repay your loan obligations. If that is not the case, can you demonstrate that it will become profitable in a near future? If you are a start-up business, present a strong business plan, showing statistic on industry profitability, market profitability and market behavior in order to justify your own revenue and expense projections. Business resource centers, nonprofit groups and government agencies nationwide can help you prepare your business plan.
Positive net worth. For existing businesses, identify the amount of equity you have on your balance sheet. Does your business owe more than it owns? By demonstrating your company has more assets than debts, you are indicating it can pay its own bills. For a new business, you will need to show how much equity you are contributing to your company.
Starting capital. When applying for any type of loan, including an SBA loan, you have to provide some starting equity for the business. This is seen as a demonstration of potential growth and profitability and increases the confidence in the business. SBA loans require a minimum 10% capital injection; others require 20% to 30% and, in some cases, even more.
Capable management. If you are already in business, you will need to provide evidence you have what it takes to make your business succeed. Strong management means well-trained and experienced managers skilled in strategic planning, marketing, recordkeeping, inventory control and hiring personnel. Discuss management succession in your plan and with your banker.
Let Zions Bank’s Business Resource Center assist you in finding the right source of capital for your business. Call us for a free appointment at 801-594-8245. We are open Monday through Friday from 9 a.m. to 5 p.m. Beth Holbrook can be reached at firstname.lastname@example.org