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Business Borrowing Smarts

Like most business owners, you probably have high hopes for your company’s future.briefcase You want to expand, to add employees, and, perhaps, to open up other locations. You know that to turn these hopes into reality, you’ll need financing. But you also know that obtaining a small business loan is never a slam dunk.

How you approach the process of securing business financing can determine whether you get the money you need. Here are some ideas that may help make a difference.

FIND THE IDEAL MATCH

Not all banks lend to small businesses. And not all of those that do lend to small businesses lend to all small businesses. The ideal match for you is a banker who’s familiar with your industry and can discuss potential risks and make informed decisions.

LAY THE GROUNDWORK CAREFULLY

If you walk in off the street and ask for a loan, you may not be successful. If possible, build a relationship with a potential lender. If your plans call for borrowing a substantial amount in a few years, you can establish your creditworthiness ahead of time by setting up a line of credit or taking out a small loan.

SUBMIT YOUR BUSINESS PLAN

Regardless of whether you have a relationship with a prospective lender, you’ll need to submit a business plan along with your loan application. Be prepared to answer questions about the assumptions you’ve used to create your plan. You might want to take things one step further by projecting how your plan might play out in three different scenarios: best case, most likely, and worst case.

Another proactive planning move is to line up some secondary repayment sources (business or personal collateral, for example) ahead of time. It shows the lender that you acknowledge the risk your loan represents and that you already have a backup plan.

PROVIDE FINANCIAL INFORMATION

Potential lenders will want to verify your background and confirm that you have the necessary experience. They will also require extensive financial information, including both your personal and business credit histories. Be prepared to provide personal and business financial statements as well as cash flow projections for a year (or more, depending on what the lender requires).

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