On Small Biz Trends, Anita Campbell highlighted that Rohit Arora, CEO of Biz2Credit, suggested that there were “three ways that [President-elect Donald] Trump can help small business owners, solidifying their support moving forward: Lighten regulation across the banking industry, which will open lending spigots; reduce the tax burden on small business owners by slashing taxes and simplifying the tax code; and replace the Affordable Care Act (“Obamacare”) with something less costly for small business owners.”
During his campaign, President-elect Donald Trump promised to create jobs, reduce government regulation, cut business taxes and repeal and replace the Affordable Care Act (ACA), commonly known as Obamacare. Given that agenda, it’s no wonder many small-business owners supported him, as mentioned in Campbell’s article.
Political science literature supports the argument “that presidents make at least a ‘good faith’ effort to keep an average of about two-thirds of their campaign promises,” however, that’s no guarantee that any changes will affect small business owners immediately, or at all, if they’re not proactive in their efforts to take advantage of any regulation changes. Tweet This This is one part of a three part series that addresses the issues Arora suggests and how business owners can start helping their businesses now. This article addresses securing a loan, in the case that small-business owners are grappling with the need to obtain financing to hire workers, buy equipment, rent space, stock inventory and take other steps to expand the business and make it more profitable.
Some business owners can choose when to seek financing. Others must seek and secure loans and credit lines even when the timing isn’t ideal so they can sustain their businesses’ fast upward trajectory. A deliberate decision to avoid borrowing and keep a company smaller can sometimes kill momentum and result in lost opportunities. Or sometimes a business is faced with an unexpected challenge that puts a strain on the company’s cash flow.
Types of small-business loans
A bank line of credit or short-term loan can be a good way to manage cash flow, purchase inventory or take advantage of seasonal demand. A short-term loan typically would be repaid within nine to 12 months while a credit line or business credit card can be tapped, repaid and tapped again.
Longer-term financing, with a repayment period of more than one year, can be helpful to increase working capital, invest in new facilities, technology, equipment or product development, or acquire another business.
A loan may be unsecured or secured by assets owned by the business or borrower. A certificate of deposit can also be used as collateral for some loans.
Factors that affect ability to borrow
Business loans can be obtained from national and regional banks, credit unions and non-traditional lenders, which may do business mainly online. Some lenders are regulated by the federal government. Others are subject to state oversight.
Non-traditional lenders may have more flexibility to approve loans that traditional banks may consider too risky.
How much a small-business owner can borrow typically depends on how long the company has been business, the company’s financial results, the intended use of the funds, the business’s credit scores and ratings, and the owner’s personal credit score, among other factors.
The loan amount should be appropriate – neither too large nor too small – to the size of the business and the intended use of the funds.
Owners are advised to take a look at their company’s business credit profile and their own credit history before they apply. That way, mistakes can be corrected before the lender reviews the request and information that’s negative, but accurate can be addressed in the proposal.
Preparing a loan proposal
A loan proposal is a detailed, fact-based marketing document that presents the owner, business and loan request to potential lenders.
The proposal should explain the nature of the business, how the funds will help the business grow and how the loan will be repaid. It should include information about the market, products, customers, management, collateral (e.g. assets), financial statements, cash flow and profit projections and owner’s equity. Copies of important documents, such as articles of incorporation, a partnership agreement, business licenses, leases, franchise agreements and contracts with major suppliers or customers, should be included as well.
Given the current political uncertainties, business owners may need to reassess their financing needs. More financing, less financing or different types of financing might be appropriate to respond to shifting market conditions and opportunities.
Photo Credit: wolf_grammer, Twenty20