I started my business a year ago, and things are going well. I want to get a small loan to invest in marketing, so I can get more customers faster. I hear that banks don’t give loans to businesses in their first year. Is this true?
It’s only easy to get money when you don’t need it. This is true for individuals and businesses. When you have an established business with lots of cash flow or you have valuable assets to use as collateral, it’s easy to get a line of credit. So, a new business that has terrific cash flow may be able to get a loan, even from a bank whose stated policy is not to lend unless a business has two years of audited financials.
If you think that you may need a loan, you should get busy meeting and talking to bankers. Start at the bank where you have your business accounts, but don’t stop there. Make sure you talk to as many lending officers as you can, so you can develop a sense for the range of options that may be available to you. Often, what makes the difference in your ability to get a loan is whether or not there is a person at the bank who will advocate for you. Start building trusting relationships now, as that can only help your cause.
Learn to Think Like a Banker
Bankers want to use their money to make more money, but they want to do so with a minimum of risk. See what you can do to show the banker that your business is worth the risk. It will help to have a business plan and a set of financial projections that are presented professionally. If your business does not have a track record, then the bank may ask for a personal guarantee based on your credit history.
Consider other Funding Sources
If you are looking for a small loan, look for local microlenders. The U.S. Small Business Administration (SBA) will connect you to local microlenders on their lender match page. Microlenders are usually nonprofit organizations in your local community. They are dedicated to helping local small businesses grow, and they may have more business-friendly requirements than you will see at your local bank branch. If you cannot find a bank or microlender that will support your business, you may need to pursue equity financing. You may be able to raise money on a crowdfunding site or from your most loyal customers. Or, you may be able to find an investor who will support your efforts to grow in exchange for shares of the company.
Regardless of where you get the money, when you take money for your business, there are always strings attached. Make sure that you understand what you must give the funder in exchange for the funding and that you are comfortable with the risks involved. It may be tempting to get money to grow more quickly, but if things are going well, do consider staying patient and letting the business grow at its own pace. If you can do it yourself, then you will reap all of the rewards yourself, including maintaining complete control of the business.
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