Here's a few tips on working with lenders to get the funding your small business needs.
Small businesses may be the engine of our economy, but many small business owners view the lending process as complicated and frustrating.
Too often, growing enterprises find themselves shut out when they attempt to obtain small business loans. In theory, it should be difficult to obtain funding--lenders are in the business of making money, not providing charity. Still, there are many ways to improve your odds of getting a loan.
Here are some things to consider.
1. Put yourself in the lender's shoes--why should they lend you money? When applying for a loan, treat it as if you're applying for a job. Instead of a great resume, however, you need a stellar application. That means understanding your financial situation and deciding what you can use for collateral, which might include your house. A business person who does the latter shows they believe in their business. Cash flow and credit quality are other key factors. And dress professionally; if you look like you don't need the money, you're more likely to get it.
2. Figure out how much money you really need. Businesses too often seek less money than they really need. Think about closing costs, legal fees, unplanned contingency, operating costs and the like. We typically work with the “Rule of 3’s”: Three times as costly, three times the amount of time and three times as frustrating. Plan accordingly and present your thoughts.
3. Learn from your mistakes. If one lender rejects you, figure out why. When you go to the next small business lender, address that deficiency.
4. Those with poor credit in a business-to-business environment that have receivables can use them as collateral. Alternative lenders, such as so-called Internet lenders, will charge higher interest rates, but generally have more relaxed standards.
5. Always consider--in most cases it should be your first consideration--working with Small Business Administration-backed (SBA) lenders. Many businesses incorrectly assume they aren't eligible. SBA loans often feature low interest rates and generous repayment terms. Also note that just because one SBA lender turns you down, not all lenders will do likewise.
6. Know what you're getting into. That means learning the annual percentage rate (APR) of the loan. Know what the fees will be, as well as any prepayment penalties. Be an informed shopper.
7. As mentioned earlier, online lenders may provide funding (and quickly) if other alternatives fail, especially for those with bad credit. Aside from higher interest rates, Internet lenders are known for onerous terms and poor transparency, so be sure you really need the money--and can pay it back--if you go this route.
8. Small banks are likely to be more helpful than bigger banks that prefer working with larger customers.
9. Contact an expert in commercial lending that works for you. Banks work for themselves, not you. They are in the business of getting themselves the best deal which is understandable – as we said, they are in the business of making money too. Let an expert, working for you, guide you through the process of obtaining a loan. You are your-business-focused. Commercial lending experts, like Cardinal Capital, work for you in the commercial lending world.