The short answer to this question is – no. However, it has really become increasingly difficult to obtain a small business loan, and to realize your dream of having a small business enterprise grow into a major one, which can be a source of pride and profit for years to come. The reason it has become so difficult to obtain a small business loan is that many of the criteria used by lenders have been tightened considerably in recent years, which means far fewer candidates are being approved for loans.
From the lender’s perspective
In order to understand why so few loans are approved these days, it is only necessary to look at the situation from the lender’s perspective. Any lender looking at your business must ask himself/herself if that business is likely to become profitable, and how likely it is for that business to repay the loan which is being requested. In order for any small business owner to secure a desired loan, it will be necessary to present compelling evidence that the loan will lead to profitability, and that there’s a very high likelihood of repayment to the lender.
Of course, all lenders understand that there’s a certain amount of risk attached to any business transaction, but in order for a lender to stay in business, he/she must be approximately 90% sure that any business owner receiving a loan will have the capability of repaying that loan. To achieve that 90% confidence rate, a lender will look at a variety of factors, the first of which is your cash flow.
After that, a lender will review your collateral status, i.e. all those assets associated with your company which could be liquidated to repay the loan. Next, a lender will evaluate whether or not your company has any financial or legal risks associated with it, which would make it a liability. The final component of your eligibility for a small business loan would be the diversification of your product lines, because the more diverse they are, the more likely your business will be to survive if a single product line should suffer.
Small business owner character
It’s also very important to a lender how you present yourself as a person and as a business owner. Interpersonal relationships count heavily in considering small business loans, because lenders need to be sure that you’re a trustworthy and responsible person. To determine this, they’ll examine your past history, starting with the number of years you have been in business, as well as how profitable your business has been during those years.
Your credit history will of course be reviewed carefully, to be sure that you have the means of repaying a loan, and your equity status will tell a lender whether or not you are personally invested in a project. It will also carry considerable weight if you are capable of marketing your business, and pitching a loan idea to a lender that will help your business grow.
When you’re pitching a proposal to a lender for a small business loan, it’s very important that you have solid plans for how you will achieve success, and achieve greater profitability. This does not mean that you should puff up the plan with outrageous claims that are clearly not achievable, and are built on wishful thinking. It would be far more advantageous for you to present a solid cash flow forecast which is logical and reasonable, and whose projections have a solid foundation. Your business model should also be constructed in such a manner that it is adaptable to meet future challenges, rather than too rigid and susceptible to the vagaries of the business world.
Do you need help preparing for a small business loan? Doerhoff & Associates knows you can use all the help you can get to launch your small business successfully, and we are here for you. We strive to provide what you really want and need – a unique and customized set of services to fill the gap and support you, the business owner.