Small Business Loans Help Realize Your Dreams/ December 14th, 2018
Many people dream about running their own business. With a lot of skill and determination, you can make the dream a reality, but entrepreneurs do face certain odds: 20% will fail in their first year and about only 50% will survive their 5th year, according to the Bureau of Labor Statistics. Why? Poor management is cited most frequently, while inadequate financing is a close second. This makes it important to get the best start possible. Your credit union can provide you with the money and advice you need to start your own business.
How to get a business loan
Start by creating a business plan. A business plan is a document you’ll need to give to your lender that details your personal enthusiasm for the business with real life facts and figures. It also serves as a guide for your company's progress and should change and expand with your business.
A business plan should explain how you will manage, operate, and finance your company. Call the credit union and ask what our lending officers look for in a plan. You’ll find free assistance for creating a business plan through SCORE--Service Corps of Retired Executives or through the Small Business Administration. A business seeking a loan should answer these 10 questions in its business plan:
- How much money do you need and what is the owner's capital commitment? A rule of thumb is that 20% to 30% investment in the company needs to come from the owner, from either personal cash and savings or equity in the business.
- What will you use the money for? Give a clear description of how you'll use the money and how you intend to pay it back.
- How will the loan affect your financial position?
- What will you pledge as collateral? You'll have to pledge some tangible asset – such as stocks, certificates of deposit, or property – to obtain a loan. If the loan is for the purchase of equipment or real estate, that can become collateral.
- How will you repay the loan?
- When will you repay the loan?
- If you don't realize projections, can you still repay the loan? For example, do you have a spouse with outside employment?
- How much can your business afford to lose and still remain viable?
- How will the business manage risk?
- For an existing business, how has it performed to date? Is the financial position of the business improving or declining?
Here are some things to bring or be prepared to discuss when you sit down with one of our lending officers:
- Purpose of the loan
- History of the business
- Projected opening day balance sheets
- Lease details
- Amount of investment in the business by the owner(s)
- Projection of income, expenses, and cash flow
- Signed personal financial statements
- Personal résumé
- Names and contact information for at least three credit references
- List of business and personal assets that could be used as collateral
For existing businesses, also bring financial statements for the past three years, schedule of term debts, and aging of accounts receivable and payable. The next time you're in your credit union, ask what resources we offer to get your business dream started.