Man filling out an application for a grant for new small business

Applying for a Small-Business Loan

The questions you ask yourself before applying for a small-business loan will determine the difference between success and failure. Below are some of the considerations every small-business owner should pay attention to before signing on a dotted line.

How well can you present your plan to others?

If you cannot sell the common person with an elevator pitch on your business in 30 seconds or less, then you shouldn't pursue a loan just yet. You must be so confident and well-researched that your expertise comes through in any situation.

Investors are not looking for the nuts and bolts until they believe in the overall idea. In order to get a loan for a business, you must show these people that they have a good chance of getting their money back.

How is your relationship with your banker?

Personal relationships go a long way in securing a loan. To break through the wall of computers and reach the real person sitting behind the desk, you have to earn trust. Otherwise, a banker has no problem simply judging you based on what the computer says you are worth. With most new and innovative business ideas that are not fully quantifiable, a computer-generated banking reputation is not to your advantage.

Cultivate a relationship with your banker by paying back all of your other debts on time. Make it easy for your banker to say "yes" by putting successful industry experts on your board of directors. Have the support of people who are trusted by the bank.

Have you detailed all of your expenses?

The better that you detail your expenses, the more likely that you are to receive a small-business loan. Bankers like to know exactly where the money is going and how it will directly affect the return.

Many new business owners make the mistake of trying to nickel and dime themselves out of any margin of error on their loan. They cut all of their expenses to the bare bones in order to borrow the smallest amount of money possible, thinking that this will be attractive to a banker. It is not. If something goes wrong and you do not have money in the budget to fix the problem, then the business will be in deep trouble and the bank may lose its entire investment.

Focus on creating a budget that is comfortable for you. It is much more important that you detail where the money is going rather than try to eliminate all expenses to borrow less.

What is the market like for small-business loans?

The success and failure of other banks who loan to small businesses will affect how your bank treats you. Learn how the market is doing and get quotes from many banks. There is nothing wrong with making bankers compete for your business, especially in a seller's market. Document all offers. Bankers like to see hard numbers down on paper. They will respect you more if you come prepared with concrete information.

Last Updated: September 26, 2017