Introduction

Looking for a small business loan? It may seem like an intimidating process. But you can help yourself along by understanding the big picture. First, put yourself in the lender’s shoes. What is lending all about anyway? In a certain way, a lender’s business is quite simple. The lender borrows at one rate and lends at another. The rate at which it lends must cover not only its borrowing costs but also the other costs of its operations (such as salaries, office expenses, sales and marketing costs, etc.). Another very important cost that the lender must cover is the cost of any bad business loans. Bad loans (or write-offs) can be very costly. It’s the fear of bad loans that keep lenders up at night. Here’s why: a lender charging 10% annual interest on 10 loans of equal size can see an entire year’s revenues (never mind profits) wiped out by one bad loan. So it should not surprise you that in making lending decisions lenders are most concerned about whether the loan will be repaid.

How do lenders know if they will be repaid? The answer is: they don’t. There is simply no way to be sure. So instead, lenders estimate the likelihood that they will be repaid by judging the borrower’s credit history and valuing the borrower’s assets, particularly those used as collateral for the loan. The borrower’s credit history tells the lender if the borrower has a pattern of repaying debts. The value of the borrower’s overall assets give the lender an idea of the resources that the borrower can tap to pay its debts. But, more importantly, the value of the assets used as collateral to secure the loan act as the lender’s safety net (albeit not a foolproof one) because the lender can foreclose on (i.e., take possession of) these assets, liquidate them, and use the proceeds to recoup its money.

Now, when it comes to a small business loan, the first thing to understand is that almost all small business loans require a personal guarantee from the business owner. Therefore, in determining whether to make a small business loan, a lender focuses on: (1) the business owner’s credit history, (2) the stability and credit history of the business, (3) the assets of the business, and (4) the business owner’s personal assets.

So if that’s what the lender is focusing on, then that’s what you should be focusing on. Part of our mission at BusinessLoanNow.com is to help you make yourself and your business better qualified for business financing. Our information and resources will help you to:

• Get your credit score and find out how to improve it.
• Learn how you can better establish the credit history of your business.
• Recognize the various types of assets that lenders will finance.
• Understand the various financing options.
• Identify assets that you may not know you (and your business) have.