Traditional small business financing is usually bank lending. The problem is that as high as 90% of small business traditional banks and SBA loan applications are declined. Most small business owners end up funding their business through non-traditional methods or relying upon personal resources to fund their business.
Do Your Homework
When considering a traditional bank or SBA loan you will need to think long term and do your homework before you apply. One of the main questions to ask of your possible lender is will they finance in your industry and do the loan the amount of money you are seeking. Many banks start their business loans at $250,000 and will want to see a business plan, financial statements, tax returns, business credit reports, and personal credit reports of the owners.
What Types of Loans
When doing your bank homework check to see which types of traditional business loans your prospective lender is doing. Most banks will have versions of the following business financing programs; revolving credit lines, business credit cards, SBA commercial loans, equipment leasing, letters of credit. You should know which of these programs is right for your business before you apply.
Selecting The Right Program
An example of selecting the right finance program is as follows. A major bank offers a $50,000 business term loan that requires three years in business, a minimum of $35,000 a month gross revenue, 10 positive reporting business credit tradelines, along with three years of financial statements, tax returns, and credit reports. Apply and don't have all that and you are declined. That same bank but in a totally different department offers up to a $50,000 business credit card and will approve a 10-minute old startup if the business owner has 760 or higher personal credit scores, less than 33% debt to income, and has a personal income of $150,000 a year or higher. That same bank will approve a $50,000 equipment lease on completely different and even lower credit terms. Making sure you select the right program from the right bank is critical to getting approved.
The advantages of traditional business financing usually outweigh the struggle to get one. Traditional bank business lending has lower interest rates, long repayment terms, comes with tax benefits, does not dilute your ownership, and can provide higher amounts. The often-overlooked benefits are in the banking relationship itself. After you have been approved for your traditional bank type business loan you have put your business on the map with all other lenders making it much easier to get financing from vendors, suppliers, leasing companies, and even better services from the bank.
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