Getting a Loan for Your New Business

New small businesses that need a loan to get started are in a classic catch-22: lenders will want to see a proven track record before they lend you any money, but you can't establish the track record until you get the loan. As a result, a lot of new owners have to turn to alternate sources of financing, such as selling personal assets, borrowing from friends and relatives, or taking on partners or investors.

If alternate sources of financing are not available to you, don't give up on getting a loan from a bank or other traditional lending source just because you're told that it's difficult to do. Be persistent.

If you already have a good credit relationship with a bank, you may have built the track record you need without even realizing it. Here are two suggestions for succeeding where others have failed:

• Develop a first-rate business plan. If your business plan is well thought out and well put together, you've just improved your chances of getting a loan. For more on how to put together a first-rate business plan, see planning your business.
• Go to banks with a good small business lending record. For a list of the top eight banks in your state, see the best banks for small business.

The importance of keeping good financial records cannot be overstated. It's important:

• at tax time
• if you want to get financing,
• if you want to monitor your business's progress,
• if you ever want to sell your business, and
• if you just want to know where your money is coming from and going.

  If you intend to keep good financial records, the only way to do it is to develop good recordkeeping habits from the very beginning. In all likelihood, if you start off with bad habits, you'll never get back on track. There are numerous software packages designed specifically to keep the books, and if you use computers in your business anyway, they should definitely be considered.

  Your accountant should be able to advise you on the best way to set up your books. Before you talk to your accountant, however, you may want to learn as much as you can about how to manage your own business finances. A good place to start is with your basic bookkeeping.

  As part of any effort to raise money for your business, you should develop financial data on your business that you should be prepared to give to a lender. Here's a list of information you should compile:

  • a personal expense budget for one year (see making a family budget)
  • a personal financial statement
  • estimated startup costs of your business (see costs - setting up the business)
  • estimated first-year business expenses
  • estimated total cash requirements
  • the amount of money you can invest and the amount of money you need to borrow
  • estimated break-even point (see analyzing your break-even point)
  • a business plan (see building a successful business plan)

  For more information on bank documentation, see bank loan documentation. For a more detailed discussion of how to obtain financing for your business, see getting financing for your business.