Process of Applying for a Loan
Before applying for a small business loan, you will need to get a few things in order. Calculate how much of a “risk” your business may be for a loan. Banks and other lenders look at many different aspects of you and your business to determine the terms and conditions of the loan you are asking for. In general they look at:
• Personal credit history
• Feasibility of your business starting and/or expanding
• Your business plan
• Experience in the field of work you area doing
The state of your credit will establish the interest rate of the loan, and other conditions. Making sure your personal credit history is up to par will ensure the most success—but isn’t a total deal breaker. A score of 640 or higher will make you a desirable candidate for a loan. If you are strong in other areas of the loan process, such as your business plan, the collateral you will be putting up towards the loan and your experience can help.
Writing a strong business plan will show lenders exactly what your business is all about, and most importantly (at least to the lender), how you will pay a the loan back. If you can convince the lender you are a non-risk, getting a loan will be a much easier process.
If writing isn’t your strong suit, you can get aid in writing your business plan. It may cost money, but receiving a great loan with even better terms and conditions will pay off in the end. The SBA, along with websites such as Bplans.com and PlanWare all provide business plan templates. These templates can cost anywhere from $10-$200.
Outsourcing your business plan writing can also be a great solution. USBusinessPlan, Ethos360 and MasterPlans are just a few of the many options available. Depending on the size of your business, you can hire a business plan writer for $200-$5000.
The nature of your business will also help determine how, and what type of loan you will be able to get. Although the list varies, there are certain industries that are labeled as high risk by lending institutions. Some of these industries include:
• Agriculture or forest products
• Auto, recreational vehicle or boat sales
• Computer and software related services
• Dry cleaners
• Entertainment (adult entertainment is to be considered restricted)
• Gasoline stations or convenience stores (also known as c-stores)
• General contractors
• Special trade contractors
• Hotels or motels
• Jewelry, precious stones and metals; wholesale and retail
• Limousine services
• Real estate agents/brokers
• Real estate developers or land sub-dividers
• Restaurants or drinking establishments
• Software or programming companies
• Taxi cabs (including the purchase of cab medallions)
• Travel agencies
If you are going to be starting a company that is considered high risk, it doesn’t mean banks are your enemy. It just means you will need to beef up the other aspects of the loan process, such as your business plan and credit. It is also wise to shop around for loans, as some banks do not have these types of high-risk industry lists. Local banks are usually your best option for a bank loan for these types of businesses.