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As many small business owners know, financing is
crucial to the financial health of their enterprise.
While some small business owners have the resources
to launch their business, most look to the credit
market for financial help. Indeed, the banking
industry is an important source to gain necessary
capital. However, many entrepreneurs may not realize
that that applying for commercial credit requires a
great deal of preparation. Here are five tips to
assist entrepreneurs in improving their chances of
getting credit approval.
Tip #1: Decide on the type of commercial loan that
is needed. Loan options include short-term loans,
intermediate loans, long-term loans, and lines of
credit.
Short-term loans are usually for less than a year.
They typically provide interim working capital for a
business temporarily in need of cash.
Intermediate loans are often used for business
set-up, the purchase of new equipment, expansion, or
an increase in working capital. This loan can be
anywhere from 1-3 years.
Long-term loans are for major capital improvements,
acquiring fixed assists, and business start-ups. The
loan term is usually from 3-5 years and repayment
installments are on a monthly or quarterly basis.
A line of credit gives a small business the ability
to borrow money repeatedly, up to the credit limit.
The lender will usually perform a review once a
year, at which time the borrower is asked to update
financial statements.
Tip #2: Make sure all paper work is in order.
Applying for commercial loans can be very tedious
and requires much more documentation than applying
for consumer credit. So, the key is to be prepared.
In addition, entrepreneurs who have carefully put
together the needed paperwork to include the loan
purpose, the amount of money needed and for how
long, and a repayment schedule proposal will be
viewed more favorably by many lenders.
Tip #3: Develop a well thought out proposal. The
proposal should include the loan purpose, the amount
of money needed and for how long, and a repayment
schedule proposal. Points to include are the
business description that tells the nature of the
business, product and service, a personal profile,
and a business plan that outlines the corporate
strategy for the next three to five years.
Additional points to add are supporting
documentation that supports the information outlined
in the proposal, and collateral that will be used to
secure the loan. Financial statements, both personal
and for the business, are important as well.
Tip #4: Seek advice! It is important for
entrepreneurs to talk with someone who has gone
through the process of obtaining commercial credit
before a lender is approached. This is especially
important for the first time buyer. Entrepreneurs
can approach mentors, qualified business counselors,
business support groups, and the U.S. Small Business
Administration. This step will increase the chances
of getting a favorable credit decision.
Tip #5: Be prepared to pursue various options.
Sometimes, financial institutions will say no. Once
again, obtaining credit can be difficult, especially
for entrepreneurs who are first-time borrowers.
However, since financial institutions have different
standards, an inability to meet the standard of one
lender does not mean one fails the standards of all.
It is highly possible that credit approvals can be
gained with another lender. So, it is important to
keep seeking until a lender is found.
Obtaining credit is necessary for many small
businesses. Knowing what steps to take in this
process can greatly increase an approval from a
financial institution. Now, put these five tips into
practice and be on your way to getting the credit
you need for your business venture.
About the author:
Monique Hawkins is the owner of the online music box
store; "Monique's Music Box" located at
http://www.my-music-box.com. She enjoys sharing
information with business owners that will help them
attain success. For additional assistance from one
of the most respected markets around today, Jay
Abraham, visit:
http://www.abrahampublishing.net/app/?af=274476
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