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How to Get a Small Business Loan

How to Get a Small Business Loan.

Whether you’re planning to expand an existing business or just now getting one off the ground, a small business loan can give you the financial support you need. Not all businesses can get a small business loan, so you need to take special care when applying for one. Make sure your credit history is as strong as possible, and search for lenders. Lenders will want to see numerous financial documents, so gather them ahead of time. Although getting a small business loan takes a lot of work, it is possible.

Part 1 Improving Your Credit Profile.
1. Pull your personal credit score. Most lenders will look at your personal credit history, even when you apply for a business loan. For this reason, obtain your credit score and check whether it’s high enough to qualify for the best interest rates. Generally, you’ll need a score above 680. You can get your credit score in the following ways:
Check your credit card statement. Many credit card companies now give their customers their FICO score.
Buy your FICO score for $20 at myfico.com.
Use a free website, such as CreditKarma.com or Credit Sesame.com.
2. Obtain a copy of your personal credit report. Errors on your credit report can pull down your credit score. In the U.S., you can get a free copy of your credit report each year from the three major Credit Reporting Agencies (CRAs). Don’t contact the CRA’s individually. Instead, visit annualcreditreport.com or call 1-877-322-8228. All three credit reports will be sent to you.
3. Remove inaccurate information from your credit report. Highlight any errors and contact the CRA that has the wrong information. Common errors include accounts listed that don’t belong to you or accounts inaccurately listed as in default.
You can contact the CRA directly through its website. If the inaccurate information appears on more than one credit report, you only need to contact one CRA, which will alert the other two.
It can take up to 60 days to remove inaccurate information.
4. Improve your credit score. Paying down your balances is the fastest way to improve your credit score. Tackle high-interest debts first, such as credit card debts. Send every monthly payment on time and pay at least the minimum. You should see a slow but steady improvement in your credit score.
Avoid taking out a new credit card, which will temporarily hurt your score. Instead, you can ask for an increase in the credit limit on one or more cards.
Unfortunately, there’s no quick fix for improving your credit score, and you should avoid any company promising to improve your score fast. These companies are often scammers.
5. Build your business credit. Lenders will also look at your business credit profile. Start building your business credit history by obtaining a D-U-N-S number from Dun & Bradstreet. You can get it for free by registering at their website.
Your creditors should report your payment history to Dun & Bradstreet. If not, list them as trade references. Dun & Bradstreet will then follow up and collect payment information.
Your business credit report will contain information about court judgments or liens against your business. You can boost your business credit by paying off any liens and judgments.

Part 2 Identifying Loans and Potential Lenders.
1. Determine the type of loan you need. There are several types of business loans you can get. You should identify the type you need before talking to a lender. Consider the following options.
Line of credit. You can draw from a credit line whenever you’re short of cash. For example, you might need money to make payroll or pay a vendor. You then pay back what you drew on your credit line. A line of credit is a lot like a credit card.
Installment loan. You can get an installment loan to expand operations. You pay it back in equal monthly installments over one to seven years.
Equipment loan. You get a loan to buy equipment, and the lender takes a security interest in the equipment until the loan is paid back. If you default on your loan, the lender seizes the equipment.
2. Stop into banks. Some banks are hesitant to lend to small businesses, but you still should stop in and talk to a loan officer. Discuss your business and ask for the bank’s requirements. You should stop in at least a month before you intend to apply.
Visit banks you’ve done business with as well as banks with whom you have no prior relationship. However, local community banks are more likely to lend to a small business than a large national bank.
3. Check with credit unions. Credit unions have increased the number of business loans they make, so they are a good option for small business owners. You’ll need to become a member of the credit union before you can apply for a business loan, but setting up an account shouldn’t be too burdensome. Credit unions typically offer better rates and lower fees than traditional banks.
4. Research online lenders. Online lending has exploded over the past few years and is a good option if your credit isn’t perfect. You can find online lenders at different aggregator sites, such as LendingTree and Fundera.
There are many online scammers, so thoroughly research online lenders. Look up the business with the Better Business Bureau and Google the company to check for complaints. Only do business with an online lender that has a street address.
5. Research government-backed loans. In many jurisdictions, the government will guarantee loans. This means they agree to pay back a certain percentage of the loan if the borrower defaults. Because of this guarantee, you generally get more favorable interest rates and repayment terms.
In the U.S., the Small Business Administration (SBA) guarantees small business loans. It’s most popular loan program is the 7(a) program which guarantees up to $5 million in loans. 7(a) loans can be used to build a new business or expand an existing one.
Even though the SBA guarantees the loan, you still apply with a bank. Talk to the bank about whether it is experienced with SBA loans and ask if it is part of the SBA Preferred Lender Program (PLP).
6. Ask friends or family for a loan. The people who know you the best might be willing to loan your business money. Approach your friends and family in the same manner you would a bank. Provide them with a copy of your business plan and your financial documents.
You can agree to pay interest, which will show that you are serious about repaying the loan. In the U.S., the interest rate shouldn’t be higher than the maximum allowed in your state, but it should be at least the federal funds rate, which you can find at the IRS website.
Also draft a promissory note and sign it, which will make the loan official.

Part 3 Gathering Required Information.
1. Create a personal financial statement. Every owner who owns at least 20% of your business should create a personal financial statement. Financial statements contain information about your assets, such as cash, mutual funds, certificates of deposits, and real estate. They also identify all liabilities owed to lenders, creditors, and the government.
2. Pull together business financial documents. Lenders will want to see your business balance sheet, profit and loss statement, and cash flow statement. If you need help creating these documents, consult with an account.
Ideally, your financial statements should be audited by a certified public accountant. Ask another business owner if they would recommend their CPA, or contact your nearest accounting society to obtain a referral.
3. Collect other required information. Lenders want a complete picture of your business, so they will require plenty of paperwork. Gather this ahead of time so that the application process goes smoothly. Get the following.
Personal tax returns for the past three years.
Recent personal bank statements.
Business tax returns for the past three years.
Recent business bank statements.
Resumes for each owner and member of management.
Business leases.
Articles of Organization (if an LLC) or Incorporation (if a corporation).
Franchise agreement (if applicable).
4. Show you have the necessary down payment. Generally, you need a cash down payment of 20%. If you hope to borrow $100,000, then you should have $20,000 in cash. Make sure that you have bank records showing the necessary down payment.
5. Draft a business plan. Your business plan lays out where your business is headed in the next few years and how you plan to get there. Lenders want to see a solid business plan before they will make a loan. Your business plan should identify your target market, marketing plan, management, and financial projections.
Some lenders want your business plan to contain specific information. Stop into the bank before applying and ask about their specific requirements.
Business plans can be hard to write. In the U.S., you can get help at your nearest Small Business Development Center, which you can find at https://www.sba.gov/tools/local-assistance/sbdc.
6. Document any collateral. Some lenders won’t give you a loan unless you pledge assets as collateral. Collateral protects lenders since they can seize the assets if you default on your loan. Common forms of collateral include inventory, heavy equipment, accounts receivables, and your home.
You should document the location and condition of the collateral. If possible, hire an appraiser to value the collateral.

Part 4 Applying for Your Loan.
1. Fill out your application. Each lender’s application will be slightly different. However, most will ask your reasons for applying for the loan, as well as the identity of your management team. Also identify any suppliers you will be buying assets from.
Each lender will pull your credit report, which will ding your credit score. However, all credit pulls in a two-week window will count as a single pull, so plan accordingly.
2. Wait to hear back. You should hear back within two to four weeks. If you want, you can call once a week and ask for an update on your application status. The lender might need more documentation, so provide it as quickly as possible.
About 80% of applicants for small business loans are rejected, so don’t be surprised if you get turned down. Ask any lender who rejects you to explain why. For example, you might need to save a larger down payment or draft a better business plan.
If no lender will give you a loan, consider other forms of funding, such as getting a business credit card.
3. Review the loan terms. Any lender that approves you should provide a term sheet which contains the details of the loan—the loan period, the annual percentage rate, and fees. Make sure you are comfortable with the terms.
You probably will need to personally guarantee the loan. This means that if you stop making payments, the lender can come after your personal assets, such as your car or home.
4. Close on the loan. Sign the term sheet or commitment letter and return it to the lender. The lender will then schedule a closing, which usually happens 45-60 days later. If your loan is guaranteed by the SBA, you’ll work with the loan officer to gather the necessary documents to submit. At the closing, you will review and sign a variety of documents before receiving your loan proceeds.

FAQ.

Question : Where can I find investors for small business?
Answer : If you're in the U.S., contact your nearest Chamber of Commerce or Small Business Development Center. They might know of local investors who are interested in small businesses.
Question : Are there any charities the will help me start a business?
Answer : You should start looking into crowdfunding websites. If people like your product or service, they'll donate money. Sometimes you can give the donators your product/service at a discounted price as an incentive.

April 07, 2020

How to Write a Proposal Letter

How to Write a Proposal Letter.

A proposal letter is a professional letter that states, in an abbreviated form, why an organization, institution, or company should support a professional venture of yours. You might write a proposal letter for a number of reasons—for example, to request a grant, a business loan, or that a publisher accept your book idea. There are general formats, details, and arguments you should make in each instance, although the specifics will vary based on the recipient’s requirements. In all cases, however, you must be succinct, informative, and persuasive.

Method 1 Writing a Grant Proposal Letter.
1. Review the eligibility guidelines so you can offer proof throughout the letter. Most public and private organizations that issue grants for research or other projects have a detailed list of eligibility requirements. You must meet these requirements to be eligible, and you must confirm to the organization that you meet these requirements.
Check the organization’s website or call or email them to get complete and up-to-date eligibility guidelines.
Instead of dedicating an entire paragraph to explaining how you meet each requirement, weave this information into the body of your letter as you write it. For instance, if the organization has certain requirements concerning the types of projects the money can be used for and separate requirements for how that money will be allotted, describe these issues in separate paragraphs instead of trying to cram all the information into one.
2. Introduce your organization to an appropriate degree in the first paragraph. If you are not in regular contact with the grant organization, you should introduce your organization in fairly substantial detail in the first body paragraph of your letter. For instance, provide the name of your organization, what it does, why it does it, and who benefits from your organization's work.
If you have had previous contact with the grant agency or organization, don’t rehash basic information the recipient already knows. Instead, mention any changes or developments your organization has made since you were last in contact.
3. Explain your need for the grant and its importance to your organization. Make this the central focus of the second body paragraph. Tell the recipient what your organization hopes to accomplish and what group or groups in society are the focus for your efforts. Also explain why your research, charitable effort, or venture is important and what sort of outcome you are expecting to have.
Balance optimism and realism in this section and throughout the letter. Don’t make outlandish claims like “ending poverty” with this grant. Instead, explain how the grant will help “alleviate food insecurity for at-risk children both before and after school hours.”
4. Provide a timeline and other practical details on how the grant will be used. In the third paragraph, include realistic content about the timeline your project will require, the locations you will operate in and/or impact, and similar information.
State when the project will begin and how long you expect it to run. Be as precise as possible: “If the grant is approved, we intend to operate the program from August 25, 2020 through August 24, 2021.”
Some grants are location-specific. If this is true of the grant you apply for, you will need to indicate where your organization is based, the geographic area that will be studied during your project, or the geographic area that will benefit from the project.
5. Mention how much the project will cost and how much grant money you are requesting. Be as specific as possible so that the grant organization can get an idea of how crucial its funding is. Provide this information in its own paragraph or integrated into the prior paragraph on grant use details.
Particularly if you are applying for a grant without a pre-determined funding amount, be sure to state precisely how much money you are requesting.
Be precise in your cost estimates and provide supporting documentation as enclosures in your application packet, as per the organization’s application instructions.
6. Include any additional information requested in the application instructions. The grant agency or organization may require additional information that should be included in your proposal letter, or it may require separate documents as enclosures in your packet. Refer to the application instructions carefully and frequently, and contact the organization whenever you have questions or need clarification.
Additional documents may include financial budgets, past financial records, and past records indicating the success of similar projects performed by your organization in the past.
Make sure your grant request isn’t delayed or even rejected because you failed to provide a required piece of information.

Method 2 Writing a Business Financing Proposal Letter.
1. Refer to any prior contact at the beginning of the letter. If your business is already established and has a previous relationship with the lender or funder you are contacting, be sure to mention that prior contact. This doesn’t guarantee success for your current request, of course, but it may strengthen your status as a “good bet.”
If you interacted with a specific contact at the company, mention that individual by name. For example: “Nearly seven years ago, I worked with Jane Goodson at your company to help secure the funding that got my business off the ground.”
2. Discuss the size, scope, and focus of your company. Include your mission statement and a short description of the products or services your company provides. To make your case for funding more convincing, also include details like the number of customers served, the number of employees, and information about any administrative boards.
Providing a brief summary of your business helps the funder get a better understanding of who you are, what you do, and why you are a good choice for funding.
Aim to spend 1 paragraph on this content, in most cases.
3. Pinpoint the amount of funding you need and why you need it. Take a paragraph to both identify precisely how much funding you are requesting and explain why you need financial help from the funder. Describe what, specifically, the funding will be used for.
For example: “The $50,000 loan we are requesting will enable us to expand production in our highest-profit product range and grow sales by an estimated 20% within 2 years.”
You may need to include budget data that spells out how funds have been used in the past and projections on how the funds will be used this time around. This additional data may need to be included as a separate attachment.
Regardless of how much information you include in the body of the letter itself, you should always state the total cost of the project and how much of that cost will be covered by the funder's support.
4. Explain how you will use the funding, specifically but succinctly. You need to provide enough information about how the provided funds will be used to make the prospective funder curious and excited by the prospect. Provide key highlights in a paragraph, mentioning specifics but not going into excessive detail.
This should only be a summary. With a full-scale proposal, this information can take pages. This information should take no more than a half page when writing a shorter proposal letter, however. Provide separate enclosures as needed.
5. Offer to provide additional details at the close of your letter. Since a proposal letter is shorter than a full proposal, make it clear that you are willing and able to provide additional details as requested. Do this instead of sending excessive amounts of information that has not been requested with your proposal letter.
For instance, you last sentences might read: “Should you need any further information, please feel free to contact me directly by phone or email. I would also be happy to meet with you at your offices.”
6. Include any necessary enclosures with your packet. Check over the application requirements again. If the prospective funder requires additional documentation along with your proposal letter, include it in the envelope as an enclosure. Note the enclosures in your proposal letter.
Possible documentation might include a list of board members, copies of your tax documents and financial documents, and resumes of key staff members.

Method 3 Writing a Book Proposal Letter.
1. Check the submission guidelines before starting the letter. Every publishing agency and publisher has its own set of submission guidelines. These can usually be found on the publisher's website—if not, call, email, or write to the company and request a copy of their guidelines before proceeding.
Submission guidelines outline the types of books a publisher or agent will accept, as well as the required format and content for the proposal letter.
2. Spend the first few paragraphs describing your book. Right from the start, you need to convince the agent or publisher that the book you want to submit will be successful in the marketplace. In the first paragraph, use around 300 words to write a brief but intriguing summary of your book. Write a second paragraph that describes the essentials of the book, such as genre, word count, and likely market.
If you’re writing fiction or creative non-fiction, outline your narrative and describe your main characters in the first or second paragraph.
State whether or not the book is finished at some point in these opening paragraphs. Note, however, that some publishers will not accept proposals for unfinished works.
3. Identify your expected target market and competitors. Use a paragraph to thoroughly describe the demographic your book is aimed at. If possible, provide provide statistics and make sure they address your target demographic in specific, rather than general, terms.
Perform a competitive analysis in this section. List a few main competitors to your book, explain how well these competitors do in the market, and describe why your book will offer something its competitors do not.
4. Provide biographical information, especially in relation to the book’s subject matter. Describe yourself and explain why you are the perfect person to write this book. Don’t fabricate or exaggerate details, but do put a positive spin on your personal bio.
Mention any writing experience and publishing experience you have.
Mention any experience you have with your book’s subject matter. For instance, if you’ve written a book about fashion and have experience as a fashion designer, include that in your letter.
5. Summarize your intended role in the marketing plan. Provide specific information about what your plans are concerning the promotion of your book once it gets published. Be specific, not general. Do not state what you are willing to do, but rather what you will do.
Instead of writing “I would be willing,” for example, go with “I will.”
Possible forms of marketing include professional blogs, book signings, and professional conferences.
6. Include a more detailed synopsis as a separate enclosure. You will usually need to include a 1-2 page synopsis that describes your book in fuller detail than your 300-word summary at the start of the proposal letter. Unless otherwise directed, include this as an enclosure, not as part of the main body of the letter.
Provide a full summary of the entire plot and purpose of your book. Include all the major details about the plot and significant sub-plots.
7. Enclose a sample table of contents and an extract, if requested. Some publishers expect you to send along a table of contents, an extract from the work, or both. Follow the specific submission guidelines provided by the publisher, and get clarification if needed.
If you do not yet have a table of contents, you may instead need to provide a brief summary of each chapter.
Some publishers and agents will request the first few pages or chapters of your book. Others may not specify which part of the book the extract needs to be pulled from. Regardless, the extract should be an example of your strongest writing.

Method 4 Formatting the Letter.
1. Start by placing your address at the top left of the letter. In the upper left corner of the letter, write your street address on the first line, then the remainder of your address (such as city, state, and ZIP code in the U.S.) on the second line. Left align the text (here and throughout the letter) and single space between lines.
You do not need to include your name or title in the return address, since this information is provided in the closing section.
Do not type out the return address at the top of the letter if you are using paper with a formal letterhead that already includes the address.
2. Include the current date below your address. Double-space after the return address and type the current date in "month-day-year" format in the U.S., or “day-month-year” in nations that typically use that format. The month should be spelled out, but the day and year should be represented by numerical values.[
For instance, write “October 8, 2019” (month-day-year) or “8 October 2019” (day-month-year).
If you are not using a return address because your paper has a formal letterhead, the date should be the first piece of information you add at the top left.
3. Type in the recipient's name, title, and address. Double-space after the date, then use a single-spaced line for each of the following: recipient name; recipient title (if applicable); recipient street address; recipient city, state, etc.
Alternatively, you can put the person’s name and title together on one line—for instance: “Mr. Thomas Jones, Director of Operations.”
Use the person’s personal title—Mr., Ms., Mrs., Dr., etc.—if you know their preference. It’s generally acceptable to assume “Mr.” for a male and “Ms.” for a female. However, you can instead choose to exclude the personal title and write “Thomas Jones” instead of “Mr. Thomas Jones.”
The entire block should be left-aligned and single-spaced.
It’s preferable to write to a specific individual at a company instead of writing a general letter to anyone who may read it.
4. Include an appropriate salutation to the recipient. Double-space after the recipient's address and type the salutation "Dear" followed by the recipient's personal title and last name. End the salutation with a colon, not a comma: “Dear Ms. Amy Watson:”
If you do not know the recipient's preferred personal title and prefer not to assume either “Mr.” or “Ms.”, skip the personal title and use the recipient's full name: “Dear Amy Watson:”
Double space after the salutation as well.
5. Write the body of your letter using single-spaced block paragraphs. The exact content and length of your proposal letter will of course vary depending on the type of proposal you’re writing. The format of the letter should remain the same for each type, though.
Single space and left justify each paragraph.
Do not indent the first line of your paragraphs.
Double space between paragraphs.
6. Use an appropriate closing and signature. Double-space after the final body paragraph and include a formal closing, followed by a comma. Hit the "Enter" key four times before typing your full name and personal title—this blank space is for your signature.
Capitalize only the first word of your formal closing—That is, “Thank you” instead of “Thank You.”
Common closing options include “Thank you,” “Sincerely,” “Regards,” “Best regards,” and “Best wishes.”
Add a comma after the formal closing.
7. Mention any enclosures below your signature and name and title line. If you send any enclosures with your proposal letter, like a resume with an employment proposal or financial information with a business proposal, indicate this by double-spacing after your typed name and title and typing "Enclosure” or “Enclosures.”
You also have the option of listing each document you are enclosing. Use the following format: “Enclosures: resume, writing sample, 3 letters of reference.”
8. Review the letter for spelling, grammar, and formatting errors. Run your finished letter through a spell-check program, but don't stop there. Read it out loud to check for any awkward phrasing or grammar errors. If possible, have someone else read through it as well, since they may spot errors that you've missed.
Don't let a silly spelling error or misplaced comma reduce the impact of an otherwise carefully-crafted letter. Proofreading is important!

FAQ.

Question : How do I write a proposal for a musical tour?
Answer : dentify the potential donors and outline your plans for the tour, including the bands involved, the venues where you will be playing, and an estimate of the upfront costs and potential profit. If this will be for charity, clearly identify the cause.
Question : How do I write a proposal letter to the ministry of safety, wanting to supply them with stop signs and police gear?
Answer : A proposal is generally understood to mean something the receiver has not yet thought of. "Dear city council, after reading your urban planning blueprints, I propose to plant more trees" rather than "I see you're looking for trees and I want to sell you some." Governments are typically bound by public tenders when they buy equipment, so if you want to sell signs and gear, you have to submit your offer when they issue a tender and hope yours is the best of all offers received.

Tips.
If someone else typed the letter for you, double space after the enclosures line and include their initials. For example, add “HU” if Hilary Underwood typed the letter for you.

April 07, 2020

How to Obtaining a Business Loan

How to Obtaining a Business Loan.

Businesses need financing for start-up costs or to fund expansions. Depending on your business, you have several options for raising the necessary capital. In addition to using your savings, the most common methods of financing are debt financing by obtaining a loan and equity financing by selling shares in your business. However, there are other creative options, such as purchase order funding, crowdfunding, or using a credit card.

Identify business lenders. Debt financing is probably the most common way to finance your business. You take out a loan and agree to pay it back over a certain amount of time. The lender charges interest and makes a profit that way. The most common business lenders are the following:

Commercial banks. If you do business with a bank, you can stop in and ask how to get a business loan.

Small Business Administration. The SBA technically doesn’t make loans, but it will guarantee loans for small businesses. This means if you default, then the SBA will cover the loan. Whether your business qualifies as “small” will depend on your industry.

Online lenders. Generally, online lenders have looser lending standards and won’t require that you pledge collateral. However, you’ll need to make sure the lender is reputable by checking with the Better Business Bureau and a local consumer protection agency.

Gather necessary paperwork. A lender will need to analyze your business’ finances before extending a loan. Collect the following paperwork, which most lenders require:

resumes for all owners and managers.

business plan.

personal and business tax returns for the past three years.

personal and business credit reports.

personal and business bank statements.

accounts receivable and accounts payable.

business licenses..

articles of incorporation or organization

commercial leases.

Update your financial reports. You’ll also need to submit financial reports to most lenders. Make sure you have created the following and that the information is updated.

Signed personal financial statements from any significant owner of the business. Generally, you’ll need a personal financial statement from anyone who owns more than 20% of the business.

Balance sheet for the business. This is the snapshot of your business and contains information about assets, liabilities, and owner’s equity.

Income statement. This document shows your business’ profitability during a specific period of time.

Cash flow analysis.

Review your credit history. Unless your business is established, a bank won’t lend to the business. Instead, they will lend based on your personal credit history. Review your credit history and clean up any errors before applying for loans.

Common errors include inaccurate balances, wrong credit limits, and accounts listed inaccurately as in default or collections.

Dispute errors online or by writing a letter to the credit bureau that has the error. The Federal Trade Commission has a sample letter you can use.

Find collateral to pledge. It might be easier to get a secured loan that is backed up with assets pledged as collateral. If you default on the loan, then your lender can seize the assets. Because of this added protection, banks might require collateral if you don’t have an established credit history.

You can pledge a variety of assets as collateral. For example, you can pledge your vehicle, home, equipment, or other assets. Talk to banks about their specific requirements.

Fully document the condition and value of your collateral. For example, you may need to have your collateral appraised.

Compare loans. After you submit an application, the lender should decide whether to approve you. Generally, it takes two to four weeks to hear back. If you applied to more than one lender, then you should compare the loan details.

Interest rate. Find out what percent will be charged annually on the loan.

Fees. You may have to pay an origination fee or other fees. Read the fine print to find out the fees charged.

Prepayment penalty. If you want to pay off your loan early, then some lenders might hit you with a fee for the privilege.

Length of repayment. Check how long you have to repay the loan. Generally, the longer the loan, the less you will pay each month. However, the total amount you pay will be higher.

Submit your application. Provide all requested information and double check that it is accurate. If you have questions, contact the lending officer you have been working with. Submit your application with all supporting documentation and keep a copy for your records.

November 13, 2019