Securing a Small Business Loan

Insufficient funding is one of the top reasons why 80% of businesses fail within the first year and a half. As a business owner, not only do you have to cover all operating expenses, but the time and effort needed to succeed means you will almost certainly have to bid farewell to your day job and regular pay checks. Unless you’ve saved up enough to pay for everything for at least 18 months, you will probably have to find other sources of funding.

However, here we encounter another problem. A recent survey cited by the Credit Union Times showed that only about one-fifth of small business owners – incidentally about the same rate of successful businesses – rely on a small business loan. The survey showed that 62% were fearful of taking on a loan and almost one-fourth of respondents think they would not be approved for one. A Harvard Business School working paper by Karen Mills (Administrator of the US Small Business Administration until 2013) showed even more discouraging statistics. Banks continue to apply measures that restrict small business lending since the financial crisis hit, since such loans are generally always riskier than those to large businesses. Loans amounting to $1 million or less – the domain of small businesses – have gone down 21% since 2008. These loans made up half of all bank loans in 1995, but only 30% in 2012.

So what can you do to have a better chance at securing a loan?

As the saying goes, “The devil is in the details.” Given the stricter requirements of banks, you will need to come up with a very convincing plan that shows your business will truly make a profit. Each number presented has to be supported by hard evidence or at least some realistic projections backed by in-depth research. There must also be a clear plan as to where the money will go and how it will influence your business’s success.

Aside from this, your entire personal finances will also be scrutinized, so make sure your taxes, mortgages, credit cards, assets and liabilities, and even your credentials are all spotless and in order.

The bottom line is, if you believe in your business idea and do the necessary due diligence in coming up with a sound budget and business plan, there should be no reason to be denied a small business loan. Otherwise, you may want to reconsider quitting your day job.

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