A Small Business Loan, How to Get Approved
Throughout your lifetime, you will probably need to borrow money for a variety of pursuits, such as an automobile, mortgage or small business loan, but how to get approved for these funds can be somewhat of a mystery. When you own a business, it is important to understand how to get approved for a small business loan.
The Truth about Most Small Businesses
Small businesses are the backbone of the American economy and getting approved for small business loans should be a huge part of that. However, the truth is that very few small businesses will ever qualify for a loan from a traditional bank.
If you have ever awakened in the middle of the night because you are worried about making payroll, paying taxes or an unexpected payment you cannot make, congratulations…you are a small business owner. You should also be aware that you are not alone.
Good cash flow is perhaps the number one issue facing many small businesses today and the main reason is that most small businesses bill their clients and then get paid 30, 60 or 90 + days later. Most small businesses have faced a cash shortage dilemma at one time or another and made it through so you can too, if you are smart and know what options are available when you need access to cash in a hurry.
Every business, big and small, should have a line of credit in place for emergency cash. Yet, most small businesses do not have this since, when you are in the midst of handling the day to day affairs, it can be like not being able to see the forest because of all the trees in the way.
The Difficulty of Getting Approved for a Small Business Loan from a Bank
When banks do loan funds, they do so with the expectation that the money will be returned, with interest, and banks are looking for minimal risk. For this privilege, they require some sort of indication that you will actually be able to pay it back.
This reassurance comes with a lengthy application, a long-term repayment schedule and mountains of paperwork to prove you are good for it. For you, the small business owner, it means you will have to provide meticulous information about how you run your business, and all your financial records and assets, even the personal ones. Basically, you will have to show that you have enough collateral to back up the loan, such as the equity in your home, a lot of business accounts receivable, any other property you own.
Once all this information has been received, the bank can still take up to two months to give you an answer. During this time, they will examine everything from your credit history to your character.
Also, it is important to note that you may have to repeat this process again and again as the first few banks you approach might say no to your small business loan application. Plus, you will need to re-qualify each year at renewal time. Still, the most you might get is a Home Equity Line of Credit, in which they will give you a loan based on the value of your home.
You may also qualify for a business line of credit, for an amount that is determined by your home equity and account receivables, usually around 60 to 80 percent of the value. These possibilities will get you an answer quicker but come with the high cost of audited financials and yearly renewals.
The Ease of Alternative Lenders
With a tight economy, banks are less willing to take a risk on a small business loan, making it harder than ever to get approved. Alternative lenders might provide the solution for your small business cash needs.
One option to look at is a traditional factoring company. These alternative funding sources will provide you with cash based on your account receivables. Although there may be fewer hoops to jump through, and shorter application procedures than at a bank, the flip side is that they require a long term commitment and expensive fees. In addition, some factoring companies have the embarrassing policy of contacting your clients for verification, thereby informing your customers or vendors that you are experiencing a cash flow problem. Factoring is a long term decision, leading it to be expensive. Most small businesses don’t really need a long term factoring solution but need a short term cash infusion.
Cash Advance is the Answer
Your best bet is a cash advance organization like Financing Solutions (www.fundmypayroll.com) for those rare, emergency cash flow issues where you need to make payroll or other must pay expenses. This is the least costly option because you will not be locked into financing long term. Also, you can get the necessary funds into your account quickly, often within 24 hours, using only your account receivables as evidence of your success, allowing you to stay focused on your business.
A cash advance also allows you the time to look into longer term financing options without alarming your employees that the business is at risk of closing.