It is often said that small businesses face difficulty borrowing money, but this is not necessarily true. Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests. Requesting a loan when you are not properly prepared suggests to lenders that you are a high risk.

To successfully obtain a loan, you must be prepared and organized: you must know exactly how much money you need, why you need it, and how you will pay it back. You must also be able to convince your lender that you are a good credit risk.

Terms of loans vary from lender to lender, but there are two basic types: short-term and long-term. Generally, a short-term loan has a maturity of up to one year. These include working capital loans, accounts receivable loans, and lines of credit.

Long-term loans have maturities greater than one year, but usually less than seven years. Real estate and equipment loans may have maturities of up to 25 years. Long-term loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc.

For more information on debt financing check out the following pages:

Preparing a Proposal – Know what questions to ask yourself before you start writing.

Writing a Proposal – Use this guide to ensure that your proposal addresses the concerns of the lender.

Persistence – Don’t let a rejection defer your dream. Find out what your next steps should be to turn a “no” into a positive learning experience.

Five C's of Credit – Learn how the “5Cs of Credit” affect a bank’s decision to finance a business.

References:
• Small Business Administration

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