Cash flow is one of the greatest challenges of every small business owner. You have to have cash to fill purchase orders, pay your staff, and buy supplies to operate. On the other hand, you can’t make any cash until you have already done those things. As such, it’s almost a way of life to use working capital loans for small businesses.


Funding Types

When securing funding to keep your business functioning like a well oil machine, you’ll quickly discover commercial funding falls into two categories: secured business loans and unsecured business loans.

• Secured business loans put something on the line for collateral in exchange for the funding; perhaps the business property, or something that your business holds equity in.
• Unsecured business loans use the borrower’s creditworthiness instead of collateral. Many business owners prefer unsecured business loans because it allows them to get funding to run their business without risking a critical asset (and it also makes borrowing possible if you don’t have any critical assets). On the other hand, because the lender is taking a greater risk in giving their money to someone without collateral in exchange for it, unsecured business loans often come with higher fees and interest rates.

Choosing the type of loan that is best for your business depends on your circumstances, the amount of money you need, your business’s credit score, and your assets.

Tips for Successfully Applying for a Business Loan

1. Look for a lender who is familiar with your line of work. Every industry has a different method of survival. Some types of businesses require large upfront investments and quickly recover the money. Some are more slow and steady in the way they operate. Using a lender who is familiar with your type of business is beneficial to you, because they understand the typical life-cycle of cash within your business, and can help you find a loan that aligns with it best.
2. Do your homework. You want to show the lender that the money they are extending to you is a low-risk investment. In addition to completing your loan application, prepare yourself with financial statements, including cash flow reports and projections. The most prepared borrowers compile an overview of the last three years of financial information. Putting together a one-page summary of your financial health and your financial projections is a great way to be prepared before meeting with the lender.
3. Know your credit worthiness. Your lender is going to review your credit score before making a lending decision, particularly if you’re applying for an unsecured business loan. Approaching a lender with the borrowing request when you already understand your credit score and what that means will help prepare you for the meeting. If your credit score is less than 600, you may have trouble securing funding at all; however, if your credit score is closer to the 850 end of the spectrum, you are the type of borrower that lenders want to work with. Knowing this will give you more leverage with the terms of your funding request.
4. Prepare for your interview. The interviewer who’s making your lending decision has a large amount of money on the line. The average small business loan is between $25,000-$35,000; sometimes a small business loan can be in the millions. Being prepared for the questions they may ask, so that you can respond in confidence is incredibly important for giving the lending agent the confidence to give you a large amount of money. Some of the questions you should be prepared for include:
   • How much money are you requesting?
   • How long will it take you to repay the loan?

   It helps the chances of getting your loan if you are prepared with projections that include repayment of it within a specific timeframe. Your repayment plan should be practical, while showing that your lender will get their money back in a timely manner.

   • What are you going to use the funding for?

   Businesses typically use loan funding for three things: to expand their business, to consolidate debt, or to finance operations. It’s a good idea to be prepared with what you’re going to do with the money and how it will help you recover your loan.

Do you have any other tips for getting a business loan? Please share it below.