Inadequate funding is one of the top reasons 80% of businesses fail within the first year and a half. As a business owner, not only will you have to cover all operating expenses, but the time and effort required to be successful means you will almost certainly have to bid farewell to your day job and regular pay check. until you save enough to pay for everything least 18 months, you’ll probably have to find other sources of funding.
However, here we are faced with another problem. A recent survey cited by Credit Union Times revealed that only one-fifth of small business owners — coincidentally about the same rate as successful businesses — rely on a small business loan. The survey revealed that 62% were afraid of taking a loan and almost one-fourth of the respondents felt that they would not be approved for one. A A Harvard Business School working paper by Karen Mills (administrator of the US Small Business Administration until 2013) showed even more dismal statistics. Since the financial crisis, banks continue to implement measures that restrict small business lending, as such loans are generally always riskier than those of larger businesses. Loans of $1 million or less — the domain of small businesses — have declined 21% since 2008. These loans accounted for half of all bank loans in 1995, but only 30% in 2012.
So what can you do to have a better chance of securing the loan?
As the saying goes, “the devil is in the details.” Given the banks’ stringent requirements, you’ll need to come up with a very convincing plan that shows your business will actually turn a profit. Every number presented needs to be supported by thorough research, by hard evidence or at least some realistic guesses. There should also be a clear plan for where the money will go and how it will affect the success of your business.
In addition, your entire personal finances will also be scrutinized, so make sure your taxes, mortgage, credit cards, assets and liabilities, and even your credit are spotless and in order.
The bottom line is that, if you believe in your business idea and take the necessary due diligence in coming up with a good budget and business plan, there should be no reason to deny a small business loan. Otherwise, you may want to reconsider quitting your day job.