Everyone needs capital to turn a great business idea into reality, and most startups secure their first outside financing by talking to friends or family. But at a certain level, your small, growing business needs to secure loans to expand operations and finance expenses.

Despite the recent good economic growth in the United States, banks are still reluctant to loan to startups, and this may only get worse as the Federal Reserve considers further tightening the money supply.

But by taking the right steps, a small business can successfully appeal to a bank to secure a loan or turn to other sources to get the necessary funding. Here are some important steps to take and concepts to understand.

1. Finding the Right Lender and Loan

There are a wide array of options for small businesses to get the loan which best suits their needs. The two most important things to consider are the institution from which you are receiving financing as well as what kind of loan.

Your first option should be to go to a large, national bank. Ideally, this is the bank which you already do business with. These institutions offer the lowest APR, offer the most options, and can offer you professional advice since you are a customer.

The downside is that they are the least likely to offer you money unless you can provide a solid business plan and will not be helpful if you need less than $50,000.

For small startups who may not need that much, a better option are microlenders such as the ones listed here by NerdWallet. Businesses which may need cash in a hurry can even turn to online lenders, though these lenders offer a higher APR.

In addition to finding the right lender, also know what kind of loan you need. You may take out an asset loan backed by business assets, a short-term loan to deal with cash flow problems, or a long-term loan with lower APR to grow your business.

2. Why does your business need a loan?

This is a basic question to which you probably know the answer to some extent, but giving a good answer is critical towards your chances of success. Lenders, particularly banks, want to loan money to a business which can show it will grow. They will be less interested if you need the money to make up for some shortfall.

When you meet with the lender, be prepared to explain how the loan will help grow your business and how you plan to repay it. Numbers can be a great help here. If you can forecast your earnings and your future growth, it will help show lenders that you are serious about your business and its long-term viability.

Also set up a strong cash flow management system if you have not already. NASDAQ points out that poor cash flow management is one of the biggest killers of new small businesses, and lenders will want to see that you can track invoices, get paid, and have plenty of cash on hand for emergencies.

3. Bringing Documentation

Depending on the lender, you will likely be required to submit documentation. Banks will generally require more documentation than a micro or online lender. For example, they may ask for a formal proof of business ownership or a lease, as well as a more detailed description of how you will use the funds.

But there are some basic documents found in a business loan directory which you should expect to provide no matter what. These include financial statements, business and tax returns, proof of how long your business has been in operation, and your average bank balance.

Do not hesitate to ask any lender what documents they need before you apply for a loan. Small businesses often do not do the best job keeping their documents organized, so it is better to deal with that matter as soon as possible.,

4. Ask for Help

Lenders want to see that you have done your homework about the small business lending process, and that means consulting expert advice. Ideally, your small, growing business should have a professional accountant who can provide information and connections with other knowledgeable, interested individuals or groups.

If your business cannot afford an accountant yet, there are free avenues to seek advice. The Small Business Administration and SCORE provide mentors and workshops which can help you learn about a variety of business topics beyond how to secure a loan.

Furthermore, conduct research about all the different kind of lenders so that you know which one can offer you the best deal. In general, go for a loan program which offers the lowest APR, even if it means making a higher regular payment.

Taking out a loan is a difficult step, but also signifies your business is moving beyond fancy dreams and working in garages. By seeking the right advice and detailing how your business will benefit from a loan, you will secure the funding needed to advance the next step of your plan.

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Matthew Davies
Matthew Davies is a creative and passionate HR Director with 15 plus years proven experience up to board level in international and world-class corporations. He has had the privilege of working on a wide range of projects that have enabled him to apply his leadership and technical skills and he have proven expertise in managing change, business integration and outsourcing.

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