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How to prepare to get a small business loan

on August 26, 2011 Source: Kauffman Foundation

Not all the news coming out of the startup world is negative these days.

Capital One, for example, just released a new study showing renewed confidence in small business owners in the U.S. economy. Almost half of the entrepreneurs surveyed by Capital One say that business conditions are improving, and over 85 percent – a year-long high – say that access to capital and financing is improving. That’s a big issue for healthcare entrepreneurs, and a welcome trend if Capital One is on the money.

“Our second quarter survey results suggest that many small businesses are seeing sustained improvement in business performance. This is a trend we’ve seen developing over the last few quarters and, while the pace has been modest, it has been generally consistent and that’s definitely something we like to see,” notes Peter Appello, executive vice president of small business banking at Capital One Bank. “While there continues to be a level of caution as businesses think about expenditures, we are seeing a small but healthy uptick this quarter in the percentage of small businesses planning to hire and increase spending on business development and investments over the next six months.”

If  – and that’s a big if  – Capital One is right, conditions might be improving enough for small business owners to dust off their business plans and get ready to ask banks and private lenders for more operating capital.

Be sure to hone your pitch first; banks and lenders are still cautious about lending money in tight economic times. But if you have a good story to tell, you can get a bank to help finance your healthcare business.

Before you put pen to paper on that task, consider these tips first:

Check your credit line

If you have a credit line, know where you stand. Banks are using any excuse to cut credit volumes, so you’ll need to see if your line has been changed before you ask for more money. Some banks and major retailers – think Home Depot or Staples – are slashing credit lines because they deem some businesses to be entering a rough patch of the annual business cycle, and are thus more likely to pay late. So even if you’ve paid your line of credit religiously, you still might get your credit line trimmed. Check that before you ask for more cash.

Can you get the SBA’s backing?

One big item in your favor when asking a bank for more credit is to have the U.S. Small Business Administration in your corner. Banks and private creditors are much more likely to agree to financing if you can get the SBA to back the loan. One fly in the ointment: the SBA cut its loan guarantee levels from 90 percent of the loan to 75 percent in January, 2011. Contact the SBA for more details on how to get that backing.

Make sure to check your credit

Don’t go into a loan situation without knowing your credit health. Use the “90 day” timetable, which means checking your credit score over the past three months, as many banks do. You can get a free credit report at

What are your assets?

You may not need them, but you can use some of your assets – like a home mortgage or a 401k plan – as leverage in getting a business loan. Creating a personal financial statement is a good way to get that job done.

Check – and recheck – your business plan

Your business plan is a living, breathing financial document. It’s also one of the first things a bank will want to check before issuing you a loan. Comb through it, look for weaknesses, and have professional contacts (accountants, entrepreneurs and lawyers are great for this job) try to poke holes in it.

Business conditions are getting better, albeit slowly. So if you need some fresh financing, banks may be ready to play ball – but only if you’re ready to play the game.

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