3 Things Not to Do When Applying For Business Loans

Small business owners are some of the most hard working and knowledgeable people on this planet. They have big dreams and nothing can get in their way. One fall back for such a driven and motivated person is that often times, certain operational functions are not carried out correctly. Because small business owners want to move swiftly, certain details can often be overlooked, causing the business to not run as smoothly as we all want it to.

Applying for business loans is one of those operational functions that small business owners just can not seem to get their arms around. Here are a few tips on some of the things you should not do when applying for business loans.

Number 1 - Banks and lending institutions have no interest in taking on any kind of risk whatsoever. The recession has spooked lenders to not lend out money to anyone, or any business that does not have exactly what they are looking for. In knowing this, it is important to understand what the banks' underwriting guidelines are. Do not be intimidated by the bank or its loan officers. Once you understand how their processes and guidelines work, it is easy to entertain those processes and guidelines. Ask the bank what it will take to be approved for the particular business loan you are looking for. Do they want a certain personal credit score? Do they require a good business credit score? Do they require you to be in business for so many years? Once you have found out what those guidelines are, you can go back and work on falling within those guidelines. Do not walk into a bank and apply for a business loan without first knowing what their underwriting guidelines are.

Number 2 - Your credit score is one of the biggest factors determining whether or not you are going to be approved for business financing. Many banks are going to require that you have a decent personal credit score along with a good business credit score. Yes, the two scores are different. Before applying for financing, you need to check both your personal credit score along with your business credit score to make sure they are what you think they are. Applying for a business loan without knowing what those scores are is a big risk. There is nothing worse than applying for a business loan and being turned down because you thought you had a 700 credit score and you really had a 620. This will also affect your future chances of being approved for a business loan with any other bank or lender. Once you have been denied by three banks, you are most likely going to be denied by all other banks because your credit score has been checked too many times in such a short period. Do yourself and your business a favor and know your own numbers before anyone else does.

Number 3 - There are two facts that many small business owners fail to see in our current economy. Number one is that nearly every small business owner in this country is starving for money, which means there are thousands of small business loan applications sitting on loan officers' desks. Number two, loan officers are paid on commission, which means they are only paid when a loan has been closed. If we know these two facts to be true, then it is vitally important to have a very well assembled loan package. If you give the loan officer any excuse whatsoever to have to find more information on your business, your loan application is going right in the trash. Loan officers want to be paid, which we know only happens when a loan is closed. In this economy, loan officers are only going to spend their precious time on loan applications that they know are easy to close. Your loan application has to be prepared with everything the bank wants to see when applying for a business loan. This includes a well written business plan, professional looking financial documents, articles of incorporation, and good personal and business credit scores. If you have these documents, do not put them all in a shoe box and walk into the bank. Organize them neatly and professionally so the banks perception of your business is a positive one. Do not think you are going to be approved for a bank loan or line of credit without being prepared.

In conclusion, think about the banks money as your own hard earned money. Would you lend out money to a business owner that does not have what is required to own and operate a low risk, positive cash flowing business? No, probably not. Put yourself in the banks' shoes and think about what you would want to see. The more prepared you are when applying for business financing, the better your chances of getting approved for business financing.

Trey Markel is the CEO of T3 Media, an organization that manages small business loan websites. T3 Media focuses on creating value rich websites that assist small business owners acquire business financing.

How to Choose the Right Business Loan

Unlike fast loans, business loans can be something that are often long term, so the pressure is on to get it right. It can be difficult to find the right loan when there are so many on the market too. Here, we've listed some of the main points to consider when choosing the right loan for your business:

• What are your needs-The first thing you should consider is what you need from your business loan. Do you need the money to be ready when you need it, or upfront? How much will you need? What is the type of security you want to provide? Will it be residential or do you want to go with a loan that does not require going through this process?


• Do your research- It's a good idea to start by looking on the Internet and explore a range of loan options. Read the fine print and make yourself familiar with all the details. Failing to do this can lead to disaster. Know the terminology and what you are getting yourself into, that way you will be best equipped for making the right decision on the best loan for your business.


• What type of loan do you require- There are many different types of business loans that are specifically tailored to the needs of the business owner. Some of these include:

Start up financing: If you are starting up a business there are loans that are specifically designed for this. If this is the type of loan you are after it's a good idea to go with a lender who specialises in these types of loans in order to get the best deal available.

Business growth financing: New businesses are always growing at a steady pace. Business growth financing is a good option is you are needing a loan to help you expand your business quickly to meet customer demands.

Motor vehicle business loan: The motor vehicle business loan is a good option if you need a loan to assist with the growing transport requirements of your business.

Inventory financing: Inventory financing is all about helping you to meet the demand of your product for your customers. This type of loan will help you get your inventory up, to meet customer requirements.

Business property loan: If you want to purchase a property to conduct business, a business property loan is the best option, helping you to get expert advice on purchasing the right property, and with all the loan options you require.

Finance for equipment and plant tools: You may have to purchase or lease a large piece of equipment to be used in production and a loan specifically for equipment and plant tools is ideal for this.

General business loans: Of course, you may just need a loan to help assist with tax, wages, bills and other things not listed above and of course there are a great number of loans suited for this available on the market.

There are many different types of business loans. Some are similar to cash loans in that they can be arranged fast when you need to pay things like upcoming bills and wages. There are also other types of business loans that require a lot more time in application and can be for much larger sums of money, it really just depends on what you want the business loan for.

I hope our tips and explanation on how to choose the right business loan to suit your needs has given you some insight into how to go about choosing the right loan to suit the current needs of your business.

Improve Your Chances Of Getting A Business Loan

Is your money shrinking and you feel like you need a business loan? Too many people feel the pressure of throwing together a loan package quickly. These are three identifiable and proven ways to improve your chances of getting a business loan.

Apply for a business Loan with your Business Name Instead of Your Given Name: For instance, use your business loan, "Sarah's Block Company" versus your given name - "Sara Smart." The reason you need to apply for a business loan in your business name is because it is a business loan - Not a personal loan. The banks and loan institutions are more than happy to help your business with a business loan, but they shy away from making a business loan to a person. Having a business that is a corporation or LLC improves your rate of success - For example, an S-Corp, C-Corp, or LLC.

Sole Proprietors have difficulty as business owners getting a business loan because they lack the same credibility of being identified as a 'business' that goes with a business formed as a corporation - A business that is complete with By-Laws, tax ID number and business bank account. A business portrays the 'image' of success better than a person does. It's because of that, that lending institutions work better for those business people. As a sole proprietor, a person 'appears' to be acting in their own interests as an individual-instead of a business. Loans to sole proprietors are rated on the personal credit history and not a separate business history for the credit reporting agencies. That doesn't look good to loaning institutions.

Even Corporations can mix up personal and business debt. It's an easy trap to get caught in. Let's say that you own a construction company and you get a construction loan to develop a piece of property, but use that money to make repairs on your personal home. Although there are multiple ways to justify this, the financial company won't see it that way. Neither will the IRS agent at tax time. And there is a double penalty for doing this too - If you are audited and have mixed your expenses the IRS may choose to 'dis-allow' ALL your business expenses. You can see quickly that this could become the stuff people describe as, "the stuff that hits the fan."

There are countless examples of mixing business with personal expenses - let's say you get a business loan for a business computer, but you have some extra cash from the loan. You may think to yourself that you could get that new computer for the kids with the extra money - Bad choice.

On the other side of a business loan is a credit card in your business name. If you practice the same behavior with the credit card that you do the business loan, you will experience the same results.

The second thing to happen from this is that now you are taking a chance on damaging your personal credit score. This lower credit score affects all things with the passing of time. When you truly need the business loan - at a later date - You may not qualify.

Credit scores are a fickle bunch. They depend and rely heavily on past performance, previous and current balances and how close to your credit card limit your balance is (for example, do you have a credit limit of $500, and have charged $480 on that credit card? Consistently? This means that you are 'always' in debt at over 90 percent of your credit card limit).

At that rate, with a few of those over 50% of your total "AVAILABLE" balance listed on your credit history, your business loan approval rating goes down to about a zero. Available balance means the total balance you are listed as having access to - For instance, your balance is $250.00, but you have an available balance of $500.00, so (in theory) you could charge up to $500.00.

Don't do it - Never charge your credit card balance over half of the total balance available to you. Even $1.00 will make a difference on your credit score (a negative one).

Another thing you might not know about credit scores is this: If you want to get the best deal on a car or any other item and you use a 'credit broker,' to help you. The job of a credit broker is to take your personal and business Identification and go shopping with your credit for the bet deal they can get you. As your credit is 'hit ' with each inquiry from the individual 'dealers,' your credit score goes down an average of 2-4 points per inquiry, per credit bureau. That means if you went car shopping and your credit broker found 40 different credit buying 'deals' for you, your total credit score would be reduced approximately 80-160 total points per credit reporting agency. If you were marginal good credit before - Now your credit stinks. Plus, as your credit scores spirals down, the interest rate you qualify for goes up - Whoa! It's a game for them. It stinks for you.

The ultimate outcome from all of this is that now you are ready to get a business loan. As the owner - or principal of your business, your banker needs your personal credit score to judge whether you are a good credit risk for your business loan. To complete that business loan with any success, your score must be a good one. This is a great thing to remember when you are beginning in business. It's how you protect yourself that counts.

Get more than one business loan application from more than one lending institution - Not just one. Imagine that this is your business: You are a corporation with a clean credit record. You are new to business and have not yet applied for a loan in your business name, so you have no business history in debt repayment to reference for a business bank loan. Your company is expanding and you need to take it to the next level. You need a couple of additional employees and some specialized tools to manufacture and produce your product for the additional customers you have added to your lists.

Where in the world will you go to ask for that money? You have no loan history.

Don't let a lack of business loan history stop you. Go ahead and figure out what you need to move forward and ask for several small business loans instead of one large business loan. Your chances of business loan approval are dramatically increased by using this method and you will gain experience with creating a loan history easier for about the same cost as one large loan for everything.

You may be better off to apply for an unsecured line of credit that could be based on your stated income versus a full-blown loan application process. Sometimes that's key to whether or not you get the money you need and the approval you want. Not only are these lines of credit easier to get, because they offer fewer restrictions, but they will give you a business history to reference the next time you need to expand and grow your business.

Also, you could also use up to HALF of any credit card balances you have available to you as unsecured loans to get you going through that expansion phase. keep in mind credit card interest rates, penalties for late payments and other factors that may mess up your credit. Plan for the worst case scenario and have a back-up in place for that situation or it will haunt you.

Cheap Business Loans?

When most entrepreneurs begin the process of seeking a business loan, one of the first concerns that occupy their thoughts is the price of the loan - namely the interest rate they will be charged.

As you already know, just getting a lender to consider your business loan request is hard enough these days - but, to get one to provide your business capital at a rate that you feel is the most beneficial to your operations is down right impossible.

Every day I get requests from entrepreneurs (start-up or established business owners) who want to know where they can get a cheap business loan.

My answer is always the same - define cheap.

No loan is cheap but on the other side no loan is expensive either - if it is put to proper use.

The difference between a few percentage points on a loan is no where near as meaningful as what is done with the loan proceeds. Business loans are meant to be a leveraging asset - meaning that you leverage current cash flow to obtain a loan then use that loan to generate more in new revenue than the loan costs.

Thus, a loan is only an asset to be used by a business in its operation or quest to generate more income and wealth.

Let's take a simple example:

You and another local competitor have identified a market niche that could potentially create new uses for your current products. While this market is yet unproven, you both believe that it has tremendous potential.

You go to your lender seeking a business loan for $100,000 for three years. The lender agrees and quotes a rate of 10%; making your monthly loan payment approximately $3,227.

You feel that this rate is too high given the long relationship you have had with this lender and all the money you have paid to them over the years. Plus, you spent a few hours online researching that the average business loan rate is around 8%.

Your lender states that he might be able to get your rate reduced to 8% but you will have to wait until their next loan committee in two weeks to get it approved.

At 8%, you monthly loan amount would be approximately $3,134 - a $93 per month savings or $3,351 over the life of the loan over the 10% rate for the same amount.

In the mean time, your competitor goes to the same lender and receives a loan quote for the same amount at the 10% rate. Your competitor takes the deal.

By the time the loan committee approves your 8% rate - your competitor has already executed its marketing plan for this new market, has created demand for its products and is now generating an additional $10,000 per month in new revenue from this niche.

Once your loan is funded, you attempt to execute your marketing plan but find that you are a bit too late and your business is only able to generate $4,000 per month in additional revenue (your product is seen as a copy cat to the new market leader - your competitor).

While this new revenue pays for the loan - the new revenue generated for your business is still some $6,000 per month lower than your competitor.

Let's look at the difference. Over three years, the total amount that you have to repay for the loan is $112,811 ($3,134 times 36 months). Your business brings in $4,000 per month for those same 36 months and you earn $144,000 with a net profit of $31,189.

Your competitor spends more on his loan - $116.162 - but earns some $360,000 or net profits of $243,838 or 782% more than your business all because you wanted a cheap loan.

The bottom line here is that the cost of the loan really did not matter here. The price that your business paid for not getting into this niche before your competitor is much higher (a loss of some $6,000 per month in revenue) then the $93 per month you saved.

If you compare his rate of 10% to the profit he made of some $6,773 per month ($10,000 - the monthly payment) - his loan really was the cheaper one.

And, it really doesn't matter if you actually had a competitor trying to beat you to the market. There is an opportunity cost of not taking a business loan or by not getting it when the time is right.

Even if you were just delayed a few weeks while fighting for a lower rate - the amount of income that you lose by waiting (an amount that you can never make up as time does not go backwards) would exceed the amount you were trying to save - in this case, (if you did not have a competitor beat you to the niche) waiting two weeks would cost about $5,000 in new revenue while you were only getting a savings of $3,351 at the lower interest rate.

Now, I am not saying that you should not try to get a better deal or lower interest rate but, make sure that by doing so you are not giving up more then you are trying to save.

Thus, while you squabbled over a few percentage points looking for that so called cheap business loan, the price you paid for not getting your loan on time by far exceeded any potential savings.

The idea is not to try to seek a lower interest rate business loan just based on the loan itself. The whole deal (both potential and costs) have to be analyzed to fully understand what is a cheap business loan and what isn't.