Securing Business Loans: An Information Guide for Reno Businesses
At the core, a loan is a simple enough concept: A lender temporarily gives you money in exchange for the promise to repay the amount with some interest. They’re so common that most people understand the general mechanics of getting a loan, but it never hurts to go over the basics. Whether or not your business succeeds can depend on sensible, informed borrowing; you want to get enough money to reach the goals you have, but not so much money that it is impossible to repay on time.
The following is a practical guide to help secure a business loan.
Understanding the criteria banks want for small business loans
Naturally, each lending institution will vary in its lending standards, but they tend to share the same general desire:
You must seek the loan for a good business purpose, which means not using it for pyramid sales, gambling, passive investment or speculations
All parties signing on to the loan should have experience, good credit history and be of good character
All parties must be able to repay the loan within a reasonable amount of time, as well as have strong collateral to attach.
Have all the necessary information
Again, the specific documents you will need depends on the lender you’ll select, but you will generally need these on hand:
Business and personal credit history information
Business and personal financial statements for any existing businesses in addition to projected statements
Thoroughly detailed business plan which includes education, biography and other personal information
A year’s worth of cash flow projections
A personal guarantee
Simplifying the application process
Ultimately, you must be truthful on your application to prevent any revision delays or denials based on bad information. The following tips can also help improve your chances of successfully securing a business loan:
Carefully pick your bank. Large banks usually avoid small loans since they do not offer as much room for profit while taking just as long to service. Don’t count them out entirely, but do understand the process will be more difficult.
Start with banks you have history with. If you have an account with the bank, you’re already trusting them with your money; this will help if you’re seeking a loan from the same bank.
Speak with a lending officer. They’ll be able to inform you precisely what documentation will be necessary for the application. Be sure to bring everything; many applications are denied from insufficient paperwork.
How much are typical small business loans?
Before addressing this concern, it’s important to note that a small business can range from various sizes, whether it’s a single individual starting up a new venture or a company that employs hundreds. As you may imagine, their financial needs all vary depending on this and many other factors.
That said, the median loan for a standard small business ranges from $130,000 to $140,000; the highest is $250,000. For an SBA small business loan, you may get a microloan of $5,000 or the largest guaranteed amount at $5 million (average $371,000).
Remember the cost of interest
State laws are set to prevent illegally high interest rates on a business loan. With that in mind, it is usually possible to charge up to 10 percent per year without violating the state usury law. However, states vary in their laws, so different rules would apply to different lenders. Be sure to fully understand the laws of your state and what terms the lender has to offer.
Begin with a shoestring budget
As previously stated, it’s critical to get only the funds you need without having difficulty repaying it. Similarly, it’s a mistake to invest too much at the start of a new business. Many fail in the first year, so it’s important to give the business a chance to prove itself before jumping into a deeper investment.
Demonstrate your business’ stability
At the end of the day, a positive cash flow will still make the difference for many applications since it’s a good sign of how well the business is performing. By showing your business has a steady cash flow, you’re proving you have what it takes to use the money smartly and can repay it on time with ease.