As a small business owner, it is important to realize the need for working capital is one that will be with the business every step of the journey. In the quest for finding and exploring every potential resource for obtaining business capital, a business owner will often consider small business grants and small business loans as options. This article will offer some common sense information on what to consider what you begin the search for small business loans and grants.
What Do The Lenders Want to See?
In many cases, the specific loan or grant that you are trying to get will have a set of qualifying criteria that may be unique. However, there are some general characteristics and commonalities shared across most providers and lenders, so it makes sense to consider where some of these similar traits occur, so you can be better prepared.
A lender or provider wants to see:
- A solid business idea – depending on the specific stage your business is in, this might be a combination of P&L sheets and status reports, as well as financial numbers from key accounts to show stability and profitability. If the business is not yet operational, a business plan detailing the specifics of each potential scenario will likely be required. Too many people do not take the time to fully outline and understand the details of a good business plan – and this will haunt them in the subsequent rounds of funding needed to survive and prosper.
- A good credit history – if the business is a sole entity (defined as an S-corp, C-corp, LLC, or other incorporation for tax and legal purposes) and not run as a sole proprietorship (where the principal and the business are seen as one), then the business history will need to be clean. This does not mean that the individuals involved in the application for a business loan or grant will not have their own credit history examined and weighed – simply that a business with a unique tax/legal identification number will need to have a clean bill of health for that business. While it is certainly possible to get a loan or a grant with a damaged credit history, it is certainly an additional challenge in the application and qualification process.
- A plan for the capital – You will not have much luck to approach a lender or an organization offering grants if you do not have a fully articulated plan for what you will do with the capital your business receives. You will want to show how the investment in your business will return a larger benefit or additional profits.
- Available collateral – In many small business loan situations, the risk of the lender is what will prevent many business loans from reaching fruition. If the risk is too great, the lender balks and deals get stopped. Collateral is one way a lender is able to diffuse this risk, and it tends to make a loan easier for the borrower to obtain. Collateral might be in the form of physical assets such as equipment or real estate, or it might be in the form of a co-signor on a specific loan. Grants will not need collateral as a general rule.
- Ability to follow plan to pay back the debt – The lender’s interest is not in your business as much as it is in reclaiming any money lent. Your detailed plan of how you will pay back a loan is going to matter to them more than most other details. This is where again, your credit history is likely to be analyzed and evaluated. By displaying your knowledge of what the additional debt will mean as well as your plan to handle is accordingly, you will be assuaging the lender’s apprehensions. Your credit history will serve as further proof, and help lender’s to see you have a solid history of similar transactions, that you handle responsibly.
These are some of the simple basics, though the details for each loan or grant may certainly have a variety of individual criteria for you to understand. So where do you find business loans and grants?
Where to Find Business Loans and Grants
The places to find business loans and grants vary – and could be affected by the industry. For example, it might be easier to find a grant for a small business offering document translation services, than perhaps it might be for a bakery. It depends on what is offered by a specific industry or niche – some simply have more opportunity than others.
For business loans, local banks are a smart first stop for many small businesses. Local banks tend to have a vested interest in helping a small business succeed – and providing a vehicle for business loans is one service that feeds well into related financial services. If you do not already have a relationship established with officers in your local bank, it is a good idea to create those relationships.
There might be national organizations dedicated to helping people in your situation as well. Some are general small business organizations, like the Small Business Administration (SBA) or SCORe, while others will focus on industry, region or other identifying specifics.
A few detailed searches on the Internet should help to bring you lots of potential directions. Search using queries such as: “your industry” + organizations; “your industry” + grant programs; “your industry” + programs, or use regional modifiers, etc. This will turn up lots of potential avenues for you to find specific programs suited for your business needs.
More on SBA Loan Programs: http://www.sba.gov/financialassistance/borrowers/guaranteed/
Grants are Even More Elusive than the Already Rare Business Loan
An unfortunate truth is that grants for businesses are simply not as easy to find or to qualify for as people would like them to be. There are certainly government programs designed to provide assistance for entrepreneurs and those with solid (but untried) business ideas, but the truth is, grants are difficult to get for most people. Most would be better-off pursuing other avenues and options more diligently.
It is certainly worth it to look into various grant programs and see what, if anything, you might be able to qualify for. Perhaps you belong to a certain racial, ethnic, or spiritual group that enables you to qualify for specific programs or grants. To learn more about the various grant programs sponsored by the SBA, visit: http://www.sba.gov/financialassistance/
Once you have decided on a loan or grant program to pursue for your business idea, start by contacting the providers offering them. Learn what the qualifying criteria are, and what will help an application find greater levels of success. Ask if there are previous awards you could examine, so you can mimic things proven to find success.
Start with local banks, and move into Internet searches to explore your options. Research the SBA and SCORE offices near you – and national (or potentially International) organizations that you will find online. http://www.score.org/index.html
Ultimately, the best idea for approaching small business financing is to have a variety of different options, so that you can match your option to the specific situation. Loans and grants are certainly two options to evaluate and research – but for the best business plans, they are only two of many.
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