What is the best way to approach a bank for a small business loan in today’s economy?
I own a Security Guard business in which provides Patrol service to Clients. This means I have really no assets except for the equipment we need. It was suggested to talk to smaller banks.
The bank is interested in 2 things. First, they want to make sure they aren’t at risk of loosing their money. Second, they want to make money on the loan in the form of interest.
The second part of that (interest) is automatic, they will only offer loans that have enough interest for them to make money. You need to address the first part: the risk to the bank.
Show them that there is no risk of default. Show them how much money your company has in the bank. Show them your track record and income statements to prove that you have a well-established business with a good client base. And show them how you intend to use the money from the loan to grow your business. The other thing that many banks look for is personal investment. For example, if you are going to invest $40,000 to grow your business, the bank wants to see some of that money come out of your own pocket. This proves that you are serious about the plan and because you have something at stake too, you will be more likely to do whatever it takes to make your plan successful. The bottom line is that you need to prove to the bank that this loan is a low-risk investment for them.
November 13th, 2009 at 12:55 am
The bank is interested in 2 things. First, they want to make sure they aren’t at risk of loosing their money. Second, they want to make money on the loan in the form of interest.
The second part of that (interest) is automatic, they will only offer loans that have enough interest for them to make money. You need to address the first part: the risk to the bank.
Show them that there is no risk of default. Show them how much money your company has in the bank. Show them your track record and income statements to prove that you have a well-established business with a good client base. And show them how you intend to use the money from the loan to grow your business. The other thing that many banks look for is personal investment. For example, if you are going to invest $40,000 to grow your business, the bank wants to see some of that money come out of your own pocket. This proves that you are serious about the plan and because you have something at stake too, you will be more likely to do whatever it takes to make your plan successful. The bottom line is that you need to prove to the bank that this loan is a low-risk investment for them.
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November 13th, 2009 at 1:09 am
Pray to the Money Gods, Just Kidding,
Really is a matter of personal credit, business cash flows and experience in the industry.
However, one key aspect of business lending is loan purpose and loan type.
let me explain, Loan purpose is what you are going to do with the money. So if you tell the banker, I need a term loan for a particular project (like buying equipment) and this is how you should expect to be paid back they it may work.
But if you tell the banker, I need a line of credit for advertising, and "working capital" the general catch all of all small business, then is probably not going to work.
The loan type issue is a different story, Banking is obviously a business, so different products have different profit structures. For example a Business Line of Credit, makes Less Money for the bank than a Business Credit Card. So if you know that you will need a smaller amount it may make more sense to apply for a card.
For more info visit http://gaizer.com
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