Preparing for a Small Business Loan
Written by: Jeri Koehler
Every semester I teach business plan workshops for those
interested in starting a business. In every workshop someone
always asks the question, “How can I get a small business loan?”
Before I answer the question, let me say that it is easier to get a
loan on a Hummer, than on a small business. While this may be a
slight exaggeration, the concept is that lenders want to feel secure
about the money they are loaning. If things go wrong, they want
to know they can secure their risk, and in this case, that means
repossessing the assets of the business. Most lenders don’t want a
coffee shop or a hair salon in their portfolio. They could however
resell a Hummer. Before anyone approaches a lender for a small business loan, they must do their
homework and be prepared. Here are some tips on what to do before approaching a lender:
1. Have a plan – In addition to a well thought out business plan, be prepared with a plan of action.
How much do you want and what are you going to do with the money?
How will you pay the loan back?
How much are you prepared to put down?
How will you explain the bumps in your credit history?
2. Don’t make them dig for information –assume the banker knows nothing about you.
Drivers license number and social security number
Personal financial statement
Three years worth of tax returns
Payroll check stubs
3. Exit strategy – this will give the lender the warm and fuzzy feeling he or she needs to make them says
“Yes!” Here are some things to be prepared to discuss:
Strategy for repayment
Money set aside in case of an emergency
A second income, so the loan will get repaid no matter how sales are doing
Be prepared to put some skin in the game so the lender isn’t taking all the risk
4. Bumps in the road – if you have bumps in your credit history, tell the lender before he pulls your
report. Then be ready to explain what happened. If you’re unsu