The steps for getting a business loan begin long before you set foot in your lender’s office. In fact, long before the concept of a loan enters your mind you should have long ago set up the necessary business environment that makes getting a loan more likely. Whether you need a loan to start a business, or have been in business for many years and need operating capital waiting until you need the money to get the proper business framework is a pathway to disaster.
The methods for building a financially reputable business begins from the moment of conception. The first second you decide to go into business should begin the process of creating a business environment that is appealing and will attract both investors and lenders should you desire or need their involvement.
Odds are that even if you have the capital to begin a company on your own at some point in time you will need a business loan for one reason or another. Even if you truly believe you will never require outside financing making sure your business has the appropriate foundation is the only intelligent solution for your own investment security. Remember, many ideas sound good as a concept. The key is in knowing that the numbers support a realistic prospect of success.
The Business Plan
A comprehensive business plan should always be the first step in beginning a business. However, this document is not stagnant and should be in a state of constant evolution. A good rule of thumb is a yearly re-evaluation of your business plan. The longer you have been in operation and adhered to your plan, as well as produced a level of success marked out by the plan along the way the more leverage you will have in loan negotiations.
Your business plan will start with a summary of all the key players in your company. Even if you are the only one employed by your company it should fully explain your abilities and what you bring to the table for your businesses potential success. You also want to outline your objectives for the company. Don’t skimp. While it is not a good idea to get starry-eyed and wish for things that are unreasonable, make a very well researched attempt to map out what you expect from your company over a period of time. Five or ten year plans are good ways to start.
Each year as you re-evaluate your business plan you need to give an overview of how you met, or why you did not meet the proposed goals for that year and how it affects your future plans. The next part of your business plan is possibly the most important part when it comes to future investors and lenders.
You should give a detailed proposal for profit/loss over your five to ten year period. Each year as you evaluate your progress you need to detail why you met those levels or hopefully succeeded them. If you fail to meet a projected profit level, or exceed a loss level extremely detailed information as to why and what you plan to do to correct the lack of success is necessary. Your good planning at the beginning created by in-depth research will show an investor or lender that you know what you’re doing, and your business is strong.
Smart Business Owners Protect Themselves
Lenders will look more favorably on a businessperson who understands how to protect themselves and their business. It shows you completely understand how a business works. Once you have your idea fully thought out and a business plan developed the next thing you need to do is get the required business license. At the very least a sole proprietor should have an LLC to protect their family from financial fall-out. Then you need to get licensing from the city, state and federal government where necessary so you operating legally.
Business Identity
It is not enough to simply have the licenses your business needs its own identity. It should be registered with the IRS, and have its own bank account under the business name, listing the business address. When you set up your business phone, even if you are operating out of your own home, get it registered in your businesses name so that directory assistance will have it listed when potential clients and customers are looking for you, as well as for when lenders want to check up on who you are.
A Necessary Evil
There’s only one bottom line, and what it looks like depends a lot on who is doing your accounting. This is not an area to skimp on. Hire a professional accountant to set up your business, keep your financial affairs straight, and develop regular reports showing where you stand and what your outlook is.
Surround Yourself with Knowledge
Know your weaknesses. If you are not solid in your training skills get managers that can handle working with your staff and train them. This goes for any aspect of your business. Not only will surrounding yourself with people who are experts in their areas make your business a success it will be appealing to those looking to invest in your operation.
Keep Records
Keeping accurate records is vital to providing proof of your stability as a business. Besides your accountant and the IRS any future lenders or investors are apt to want proof of what you put down on your business plan showing you are meeting or exceeding your goals. Having complete and accurate records allows you to prove your success or explain your short-comings better and with more reliability.
Get Credit Where Credit is Due
Take every advantage to set up credit for your business. Using a business credit card in your company’s name even if you have the cash on your own to make purchases helps both keep your personal and business money separated and develops a credit standing for your company.
Make sure your business is listed in all of the proper business credit channels. The big three are: Dun and Bradstreet, Experian Smart Business and Equifax’s Small Business Financial Exchange. When you set up a business account with a credit company ask if they report all transactions. It is preferable to get a credit card from a company that reports good payment records, early payments, and payments over the minimum vs. only reporting missed, late, or under payments.
Get your business off on the right foot. That way you know where you are going, can explain where you have been, and whenever you need to step into a lender’s office, or talk with investors you can do so with complete confidence.