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What You Need to Know About Small Business Loans

by: johnlair on Date: Thu, 17 Feb 2011 Time: 12:54 PM

Regardless of the size of the business, one of the hardest things that a businessman would have to face is securing finances for the growth of his or her venture. This is especially true in the case of small business owners. In times like these, your most dependable ally would be the bank. Bu how would you court such an institution and convince it to give you a loan?


First things first; although you might not need a loan right now, it is still better to open an account with a bank who can better serve your business’ needs and size in the future. Once you have done this, make sure that you keep your records clean by ensuring that you do not overdraw and have bouncing checks. Make sure also that you do not go beyond the minimum daily balance required by the bank.


In order to establish your credit standing, you can make an initial loan of a small amount. However, you have to ensure that you make the payment on time. This would give your business a positive credit rating. Keep this up by regularly informing your banks of any financial issues that you might have.


While monitoring closely your bank transactions, you should also need to work on having any small business loans that you are applying for get approved by keeping in mind the 5 C’s –capacity, collateral, character, conditions, and capital. As the name implies, capacity is your business’ ability to repay the loan while collateral is the form of asset that a bank holds on to just in case you are unable to make payment.


You would also need to show the banker why you need the loan. This is what is known as “conditions”. Aside from this, before you can take out any small business loans, the bank will also need to check out how much capital you have invested in your business. In their eyes, the amount of investment you have made shows just how much confidence you have in your endeavor.


Banks also check your trustworthiness. They would look into your business experience as well as knowledge. There are some who would even check your educational background and credit history. In instances like this, make sure that you establish a somewhat personal relationship with your banker. This would give you enough room to let the banker know what your business is all about. By doing so, he or she would be able to know which of their bank products could help you. Who knows? You might even be able to easily get that small business loans you are hoping for once your banker is thoroughly familiar with your products and services.

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