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Small Business Start Up Loans

Small Business Loan Guide Step 4: How to Impress Small Business Loan Lenders

    Small business start up loans can make your business plans a reality. Whether you are just launching or wanting to take your business to the next level, you can make it happen with the funding provided by small business start up loans. However, you first have to prove to a lender that you and your business are a good investment.
    To make the most of the time and hard work it takes to put together a small business start up loan proposal and application, you need know ahead of time how lenders will analyze your loan proposal. Each lender will have a unique evaluation method, but they will all look for a few common things. Those common things can be used to your advantage, giving you a better chance of getting a small business start up loan.

What Lenders are Looking For:

Good Credit History: One of the first things a lender will check when you apply for a small business start up loan is your credit report. If you have some rough spots on your report, it is best to explain them in writing ("Borrowing Money"). A few late payments won't count against you, but a more serious issue will need an explanation. If you can prove that those problems are a thing of the past, you may still have a chance ("Borrowing Money").

High Owner's Equity: Lenders will want to see that the owners of the business have invested a good amount of their own money into the business before searching for a small business loan ("Credit Factors").  A high equity to debt ratio is not only financially better, but also shows that the owners of a company are fully committed to the business successful. Most lenders will not lend you more than four times the amount of equity you have in your company ("Borrowing Money"). For example, if you have only invested $1,000 in your company, a lender will only give you $4,000. From their point of view, why should they risk their money on your business if you won't risk your own?

Ability to Repay: You must be able to prove to the bank that you will have enough cash on hand to pay all your debts in the future, including the small business start up loan (Better Business Bureau). The lender will analyze your cash flow records and future projections to make sure you will have enough liquid assets and cash to pay off your liabilities.

Substantial Collateral: If you default on your payments, the lender wants to make sure the small business start up loan will still be repaid. You must be able to prove that you have a secondary method of paying back the small business loan ("Credit Factors"). You must also take into account that banks do not value collateral at market value ("Borrowing Money"). You may be surprised how much collateral you will need.

Favorable Circumstances: Lenders will analyze much more than you and your business. They will evaluate anything that may affect your business, including the state of your industry, your local economy, the overall economy and various other factors (United States Small Business Administration). How you will be using the small business start up loan will also affect their decision.

Good Personal Character: Lenders will evaluate you and your character to decide if you are trustworthy, responsible and likely to be successful (United States Small Business Administration). They will evaluate your education, business experience, references, criminal background and more. Being honest and upfront is the best route to proving yourself to a lender.

    There is no way to assure that you will receive a small business loan. But if you complete the loan proposal to the best of your ability and take into consideration what lenders will be looking for, you have a much better chance of receiving a small business start up loan. Remember, just because one lender turns you down, doesn't mean they all will. Persistence can pay off if you are doing everything correctly.

The Rest of Our Small Business Loan Guide:


Better Business Bureau. "BBBTips(tm) on Business Credit." (accessed July 27, 2006). "Borrowing Money." (accessed July 27, 2006). "Credit Factors." (accessed July 27, 2006).

United States Small Business Administration. "Applying for a Loan." (accessed July 27, 2006).