Cracking the Numbers: How to Find Funding for Your Small Business


small business

Your business needs money. It thrives on it. Marketing, sales, overhead, and inventory all depend on a steady influx of cash. Heck, your paycheck is nothing without a positive balance in your bank account. So, how do you find funding to get your company off the ground and keep it running – especially in the lean years? You learn how to get in good with your local bank.

How To Find a Small Business Loan

Many companies, like, exist for the sole purpose of lending money to businesses. Many banks are a little skittish about lending to startups, but it’s not impossible to get a loan if you’re a new entrepreneur. Basically, lenders look for six things before they lend you money.

First, they examine your character. Personal character is important since all loans to small businesses are basically personal loans. The banker has to trust you that you will repay the bank. It’s a judgement call in many cases. The second thing lenders look at is capacity. This is figured on the amount of debt your new business can support. A debt to income calculation is usually used to determine capacity.

Your business plan is also a determining factor when going for a loan. If a banker sees that you have a good plan for growth, and your contacts and contracts are promising, you will likely increase your odds of getting the loan. For example, if you have secured commitment for business, but just need funds to start manufacturing, then the bank is more likely to lend you the money.

Conditions are another factor in the lending process. The bank will make lending decisions based on the state of the economy, the banking industry, and whether or not they can make money on the deal. Banks also often want collateral, which is a secondary source of a loan payment. You put up an asset that’s worth at least as much as the loan, so that if you fail to repay it, the bank has something they can seize and sell.

You need credibility. How well do you know your business? Can you be counted on to be level-headed when things get tough? Do you have actual research to back up all of your hypothetical income projections or is it all just a collage of dreams that you hope will come true? Finally, you need a contingency plan. What if your business model doesn’t work out? Bankers like to see that you think ahead and have a backup plan in the event things don’t work out – that way, the bank gets paid regardless.

Bankers and The Risks They Take

Bankers don’t like to take risks. That sounds a bit strange, but they really don’t want to lend to people when they desperately need money. They only want to lend to people who are capable of repaying loans and who don’t represent a crazy risk to the bank.

How To Schmooze With Your Lender

While many small business owners believe getting a loan is all about numbers (i.e. a credit score), the reality is that lenders often look at more than just your credit report. Yes, you can schmooze your way into a loan. Get to know your banker by taking him out to lunch, know the kind of credit you need to get approved at the bank for loans, avoid surprises and don’t surprise your banker with a “last minute loan.” If you know you’ll need money 3 months from now, start preparing. Help him out, and he’ll help you out.

Lewis Brooks is passionate about small businesses. He particularly loves blogging about financial matters to help businesses succeed.



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