If you’re in the market for small business loans you may think that your bank or credit union is where you should start but what often times is the case is that your banker, unless otherwise a specialist in small business loans, probably has no idea what is available and what would fit your specific business need. This is where the SBA or Small Business Administration comes in. They have local offices that can help determine what options you have and which lenders can offer what you need. The SBA offers several options when it comes to small business loans and even more options if you’re a military veteran, have a CDC (Certified Development Company), have an export business or have or are starting a business in an “underserved community”. The SBA isn’t a lender therefore they don’t actually do small business loans but they do work with many banks and other lenders and if you’re working with a SBA advisor or researching thru their website they’ll point you in the right direction.
When applying for small business loans the first thing your lender will ask is “How long have you been in business?” The reasons being most don’t want to and aren’t interested in “start-ups” or new businesses that have no track record and no P and L or profit and loss statement. Two years of taxes is fairly standard and depending on the amount of the small business loans they could ask for more. The type of small business you have can play a major part in whether or not most lenders will be interested in lending you money. Banks make decisions based on numbers and one number that they’ll be looking at when deciding on whether or not to lend you money is how successful is your type of business. For instance, if I own a donut shop and I walk into my bank and begin asking questions around small business loans they’ll ask what type of business I have and then they’ll look at the success rate for donut shops as well as how long I’ve been in business and what my P and L and two years worth of taxes look like. Now being that the success rate for donut shops are very low it might not matter that I’ve been in business for five years or that I make the best donut in town. One mistake that small business owners make is that just because they’re hard working or they have a great product doesn’t mean that they know how to run a business and the only way someone lending you money knows whether or not you know what you’re doing is by looking at your time in business, your revenue and your expenses. Some businesses have high success rates such as flower shops. If I walk into the same bank and tell them I’d like information on small business loans for my flower shop and they look up the success rate of flower shops they might be throwing money my way with little background research other than my personal credit score.
Growth is what lenders are looking for. If your business is struggling and you’re going to the bank for help the likelihood that they’re willing to lend you money is going to be far less. Lenders want to do small business loans but they want to do them with a business that is looking to grow and expand. If you need more workers because demand is great for your product or you need to build inventory or new equipment because your little business is booming then lenders will be eager to work with you.