Is your small business starting to grow? If so, you may be considering seeking financing from your local bank or credit union in order to help finance new equipment and property. While it can seem difficult to get approved for small business funding, there are several steps you can take in order to increase your chances of getting the money you need without wasting too much time or money. Here are five simple steps that you can take in order to secure small business funding from banks.
(1) Understand The Process
If you want to secure small business funding, it’s not always as easy as it seems. Once you’re in the zone and ready for launch, a number of obstacles can get in your way. Getting small business funding is just one way of solving these issues. Other methods include looking for private investors, asking family members for help, or using an SBA loan. The Bank of America says that many people think that getting a bank loan is their only option, but there are other alternatives out there.
A good place to start when trying to find funding for your business is with local banks where you have accounts or loans already established. It will be easier for them to take care of any new account applications if they already know about you. In addition, try approaching smaller banks and credit unions; they may be more willing to work with individual customers on projects without large sums of money involved. Another option would be contacting venture capitalists (VCs) who specialize in startups.
(2) Ask Your Friends
1. Figure out your business strategy
2. Choose a niche industry
3. Create a sound business plan that includes financial projections, which clearly state how you will pay off the loan and how much profit you will make
4. Look for loans in places outside of the traditional banking system
5. Find entrepreneurs that want to invest in your company
6. Know what you’re getting into- some banks require collateral like real estate or stocks
7. Be persistent! Don’t be afraid to call more than one bank, especially if they are public banks with multiple branches near you.
If you have any existing relationships with bankers at those banks, reach out to them first as they may have good news about upcoming small business programs.
(3) Meet With Your Banker
Just because you’re getting turned down by banks doesn’t mean there’s no hope. There are still a few things you can do in order to keep your business funded and running smoothly.
First, meet with your banker. If they refuse you, ask for an explanation of why. This may just be a sign that the bank is lacking the financial knowledge needed for your project, which could mean this bank isn’t equipped for what you need!
Secondly, see if there’s any other bank available near you that specializes in similar projects as yours. Maybe it’ll be more inclined to approve your loan request than their competition down the street.
(4) Consider Other Sources
Businesses should explore other avenues when looking for financing options in addition to banks. For example, taking advantage of loans through the Federal Financing Agency is a popular option because the rates are much lower than typical bank rates and can cover up to half of your total purchase price or salary. Giving potential lenders a call will provide you with a list of possible funding sources and get your application process started. You may also want to consider applying for equity funding as opposed to debt funding because these loans will typically have a higher interest rate but offer an ownership stake in the company instead of repayment terms.
(5) Know What You Need In Advance
Most businesses need an SBA loan in order to grow, but don’t let the red tape get you down. Knowing what you need ahead of time can help you stay on track with the application process and make sure that your business is ready for what it takes. Here are five ways that will help you secure small business funding from banks:
1) Start Saving Early- The first step is saving enough capital upfront so that even if your business fails, you’ll have enough left over to pay off your creditors and retrain yourself. With a healthy buffer, there’s less pressure on getting approved for a new line of credit or other financings. Establishing credit histories with your banking institution early on will also be a great benefit.
2) Obtain Better Credit Ratings- Bankers consider multiple factors when evaluating potential borrowers like income levels and debt ratios. As such many banks require applicants to submit their personal FICO scores along with any collateral they may offer as security against the loan request. You can increase your odds by paying bills on time, keeping balances low, and not taking on new debts without making payments on existing ones. It’s important to avoid opening too many lines of credit because this could indicate a possible future bankruptcy filing.
