Starting a Small Business
The benefits of owning a small business are numerous – being your own boss, controlling your future, creating your own flexible hours, taking risks but reaping the rewards and feeling a sense of pride in building something of your own.
Many small business owners use financing to make their dream of ownership become a reality. While it’s crucial to perform market research and competitive analysis, create a business structure and find a prime location, your business will not get off the ground without financing.
Requirements for Small Business Financing
In order to apply for a business/commercial loan, you must have:
- Business plan – a roadmap for your business from ideation to implementation and day-to-day operations
- Business loan application – provided by the lender
- Personal financial statement – information about total assets and liabilities
Small Business Credit Factors
The five Cs of credit should also be taken into consideration. Understanding what makes a good loan will improve your chances of receiving financing. Be sure to include these details in your business plan.
- Character: Show Integrity and honesty. Oftentimes bad things happen to good people. Unpaid collections, foreclosures, bankruptcies and late payments are all red flags. Solution: Honor your obligations. Keep your credit score high, make your payments before the due date and repair/clean-up any past problems.
- Capacity: The ability to repay debt. Banks are wary of borrowers who have high credit card balances or those spending more than they can afford. Solution: Live within your means and don’t overextend your credit. Secure a long-term business loan, rather than a short-term, high fee loan that promises next-day advances at 8 to 20 percent interest rates. Refinance high-rate business loans and pay down, or better yet, pay off credit card debt and loans.
- Capital: Have a fallback in place. It’s challenging to lend to a borrower who has no way to make payments should they fall on hard times.
Solution: Be a saver. Have cash saved and tucked away for a rainy day. Show some liquidity. Savings accounts, IRAs and continuing outside income are all considered a plus. - Collateral: Often, borrowers think it’s enough to put down 10 to 25 percent toward their loan. However, this is equity, not collateral. Lenders often look to take a lien on all business assets, equipment, buildings or homes. Solution: Pledging an asset of value shows you are confident in both your business and your ability to repay the loan. Backing your business and loan with additional pledged assets strengthens your chances of obtaining financing.
- Condition: Lenders continually look at the full picture of the business. Show you’re invested and thinking ahead, be proactive and have a solid business plan. Are revenues increasing or decreasing? Is the business still current? Solution: Stay healthy. Continually better the condition of your business. Know your competition, your short/long term plans and your financial condition.
Small Business Resources
Small businesses, companies that employ fewer than 500 employees, make up 99.1 percent of all Nebraska businesses. Centris is particularly focused on helping members realize their ownership dreams. As a community-based credit union, we provide local decision making and underwriting, personalized service, competitive rates and knowledgeable lenders. We are a nationally recognized lender with a focus on small business owners. For more information about our commercial products and services or to get in touch with one of our two lenders, click here.
The United States Small Business Administration and the Nebraska Business Development Center are additional resources to help guide you down the path of becoming a small business owner.
