The risks and rewards of loans

Banks are making more loans to small businesses according to the latest U.S. Small Business Administration report. But that’s actually a little misleading, since small-business lending in overall dollar terms continues to decline – although that decline has slowed. More

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The risks and rewards of loans

Posted 8/12/13

Banks are making more loans to small businesses according to the latest U.S. Small Business Administration report. But that’s actually a little misleading, since small-business lending in overall dollar terms continues to decline – although that decline has slowed.

Total number of loans of less than $1 million was up 10.4 percent last year, and loans under $100,000 posted a 12.3 percent jump. But aggregate dollar amounts are still falling. In other words, banks are making more – but smaller – loans to business owners.

With banks continuing their tight-fisted ways, getting a small-business loan at the level you might need is still no easy matter. If you plan to apply for a business loan, you’ll want to prepare in advance by knowing how to navigate in today’s environment.

These tips will help you develop a beneficial relationship with a bank and prepare your business to get a loan.

• Know how to briefly summarize your firm’s value proposition and your strategic plan for delivering on it. If you can’t clearly articulate why customers should do business with you and how you’ll effectively compete in your market, the chances of getting a loan are slim.

• Think like a banker. Understand and be realistic about the risks of operating in your industry. Share your ideas on how to mitigate those risks. The bank will do a risk analysis anyway, so it’s important to help out. Most likely, you can provide a perspective that the banker hasn’t considered.

• Develop at least two ways to repay the loan. Bankers look for primary and secondary loan-repayment sources. And for the sake of your business, you should, too. You are in the best position of anyone to envision repayment alternatives, so be sure to discuss these options ahead of time. These might include pledging business or personal collateral or a loan guarantee by the firm’s owners, suppliers or customers.

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