When you go to request a bank loan for your small business, be prepared to present a solid case for yourself and your business as a good credit risk. Lenders want to give you a loan, but they need support in terms of a good plan, your personal investment and commitment to the business, collateral or a personal guaranty. And, most important, the lender needs to have the same confidence as you, that you will be able to repay the loan.
If you need financing for your small business and are considering a commercial bank as one of your potential sources of financing, your likelihood of getting a loan depends on a few different factors:
Your personal financial history and credit rating
Your history with a particular bank
The purpose of your loan request
Your experience in managing a business, particularly the business for which you need financing
Your personal investment and commitment to the business
How you intend to repay the loan
Your preparedness and ability to convince the lender that you are a good credit risk
Your personal financial history and credit rating
Your personal credit score will be an important factor if your small business is a sole proprietorship, and especially if you are just starting out with your own business, since this may be the only basis on which the lender can evaluate your ability to repay the loan. Your personal financial history will be reflected in your present credit score.
Your history with a particular bank
You will most likely have a better chance of getting a small business loan from a bank that knows you personally. It may be a bank where you have a checking account, credit card, overdraft protection or line of credit, auto loan, home mortgage, or other bank products. If you have been with the bank for a number of years, and they can verify that you have been timely in meeting payments on other types of credits and loans, your chances will improve considerably.
The purpose of your loan request
Lenders like to have assurance of your ability to repay, and therefore they want to know how the proceeds of the loan will be used. If you can provide a strong case that your business has the potential to generate sufficient cash flow to repay the loan, your chances of getting the loan are greatly improved.
If the loan is for purchasing property or capital goods, such as equipment, to get your business started, you may be able to offer these as collateral. This provides the lender with additional assurance.