Small Business loans - Qualify and Benefit

Lenders usually have a class of loans specifically designed for small business clients. Banks will issue a fully secured loan by business assets and personal guarantee by the owner.  Governments will have programs which make it easier to borrow funds especially if the small business owner is purchasing equipment and/or hiring new employees.

A properly prepared business plan will include financing sources into the mix of things. A small business loan my only be part of the total cash requirements of the small business. Financing from the owner as well as suppliers can be a source of financing for the business.

An existing business should prepare a financing proposal before approaching a bank for a loan. This proposal is very similar to a business plan and will include all the information that a lender will need to decide on the application for financing. A well prepared financing proposal will greatly enhance your chances of getting an approval. Find a good accountant to assist you in the preparation of your financing proposal.

It is a good idea to have your business assets, including accounts receivable, used as security for a small business loan. This way the bank will have first claim on the business assets before other creditors. The bank, no doubt, will have received a personal guarantee from the business owner thus the bank loan balance will be reduced by the liquidation of the business assets. At the same time, the owner should not be giving a personal guarantee on the trade debt of the company.

Try and negotiate with the lender that the financial statements required not be prepared on a review basis by a qualified accountant. A review is a partial audit carried out by a licensed accounting firm and will end up costing you a lot more money, thus increasing the cost of the financing. You may have to live with the review if the lender will not budge on the issue.  However, you can always revisit the matter in a future year.