Business Loan Issues

Many business owners believe they are owed a loan once they have a new business created, have some credit and a completed business plan. Business loans don’t come easy. They never have. Banks and other lending institutions follow strict rules about lending money to new or established businesses. Usually the lender either breaks even on the loan or wait too long to recoup the money. Lenders are quite cautious and need to see a business that has ducks in orders and one they can believe in.

These are some of the major problems with getting most business loans. Try hard to not fall victim to one of these as you go through the process to fund your business.

1. Less than stellar credit rating. You will need to order your credit report from all three major credit agencies to know exactly what you’re dealing with. Even if you think you know your credit details – you are better off to take a fresh look. Many things can be resolved quickly these days. See what you can do. If your business has no credit yet and your personal credit rating isn’t very strong, you probably won’t get a loan from a bank, credit union or even private lenders. That’s just the way it is – you’ll need to find other sources.

2. Loan paperwork details. Every paper you need to apply for a business loan is mandatory reading and you have to understand what is being agreed to. There are many ways to word a contract. Hire a lawyer to look at the paperwork if you don’t understand it. Maybe it costs you $300 now because of it, but at least that isn’t $30,000 down the road.

3. Good interest rate. If you can get a good rate you need to “lock it in” so you are guaranteed that rate. Sometimes things drag on and by the time you’re ready to sign the final papers the rate has changed, significantly adding expenses to your loan over time.

4. Choose a loan amount that is easily justified. Don’t stretch for another few thousand if you can’t show it’s absolutely necessary. Lenders see right through all of that. Make it crystal clear what the money will pay for and how it will be paid back.

5. Staying stable. Lenders want to loan money to people like they are – unchanging rocks. You and your business should be rocks… dependable, always there. Don’t make any major changes to your business before you get the loan – give the appearance of stability.

6. Shop for the best rates. Don’t apply to everywhere. If you can qualify at one lender, you can likely qualify from others. Don’t think you have one chance – probably you can shop around and choose the best deal. Be sure to have a look at the Small Business Administration’s loan guarantee programs.

7. No past due payments, all financial details current and up to date. Having a bank official tell you you’re late with your lease payment is a death sentence for your loan. Don’t get caught in arrears for anything.

8. Invest in your business before you ask others to. You must have money and equipment you bought for the business that came out of your own pocket. If you have no personal investment in your own business a lender will not invest in it either.

9. You need collateral. Lenders want to know they’re going to have something to take in court proceedings if you default on your loan.

10. Business plan. You will need a good business plan. You can have someone at Elance draft one up for you for a few hundred dollars. Don’t even visit a lender without a business plan that is in very good shape. Lenders have seen hundreds or thousands of them. Do you think you can whip one up in two-days and get a loan? You can’t. Have it done right.