The five Cs of securing a small business loan

By Jake Martin

4 min read

Your amazing business idea is bound to make you money. There’s just one catch: you need some cash to get things started.  A Small business loan from the bank are one of the most obvious options – but how do you find the best deals and then persuade the bank to part with their cash?

QuickBooks offers some tips to help you find the best bank for your company – and we reveal the five crucial Cs of securing a small business loan.

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Finding a business bank loan

The most obvious places to start are with the banks that manage any your business or personal accounts. As you’ve already built up some history with them, they may be more likely to help you with a loan.

How to secure a business bank loan

Once you’ve created a shortlist of lenders, you’ll probably need to speak to each individually. A bit of preparation helps enormously here, because it can help you understand what the banks are looking for in your business.

There are five key things – the five Cs of business bank loans:

  • Cash flow. Good cash flow gives the bank confidence that you’ll be able to pay back your small business loans. Expect to be asked for records of your cash flow to date, plus any future projections.The bank will be looking for evidence that you can afford pay back what you borrow after you’ve covered other costs like rent, stock and so on. Depending on your situation, the bank might also ask for your company’s payment history and even details of your personal finances.
  • Collateral. It’s great if you can provide assets as an alternative to paying back your business bank loan. Collateral can be property, equipment, stock or other assets.Collecting collateral is a last resort for most lenders, who’ll usually much rather work with you to ensure the actual money gets repaid.You’ll find it much easier to secure a loan if you’re lucky enough to be able to offer collateral as security, especially if you’re a new business without much in the way of history. Many entrepreneurs use their personal assets, but always think very carefully before putting your house on the line.
  • Capital. Banks will compare the amount of cash you’re looking to borrow with the amount already in your business, or with the amount of your own money you’re planning to invest. If you’re risking a large amount of your own money on the business, lenders may see this as evidence that you’re committed to making a success of the business.
  • Character. First impressions count, so it’s vital you make a good one when applying for a business bank loan. Lenders will consider your education, your track record and your general attitude towards doing business. If you’re serious about it, they’ll be much more likely to take you seriously.Good credit reports and impeccable references from people you’ve done business will all help build your case, persuading your bank that you’re a good candidate for a loan.
  • Conditions. You might have looked at the state of your industry and the risks faced by your company as part of your business planning. Lenders will probably ask to see your analysis of things, so brush up on the latest trends and developments in your industry.It’s all about context, of course, which means banks will consider how you plan to use the loan, the state of your specific industry and overall economic conditions. Be prepared to talk about your strategy for meeting challenges and dealing with threats.

Your small business loan proposal

Before you approach any banks, prepare a comprehensive loan proposal. This should provide key information about you and your company. Include key details about how much cash you want to borrow,what you’re going to do with it and an honest explanation of how you’ll pay it back.

Banks will also want to see detailed information about your business structure, ownership, location, future plans, key customers and suppliers. They like to lend to companies they feel they know well, so add information about the most important people in your company – include their experience and qualifications.

Cover your customers, competitors and market research too. What specific gap in the market are you going to fill?

Finally, you’ll need to include the all-important financial statements. If you’ve been going for a while, provide income statements and balance sheets for the last three years. If you’ve only just started up or are still planning, you’ll have to rely on projections. Make sure these are grounded in research and you can explain how you’ve arrived at those figures.

Our QuickBooks accounting software can help you prepare these financial statements. Finally, good luck securing the small business loan you’re looking for.

 

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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