How to apply for a small business loans, always getting the best rates. This is our main subject in this article.
We’ll talk about how to apply for a business loan. And joining us to talk about it is Aaron Kelley.
He’s senior manager of business services. Aaron welcome back to the show. Thanks Jack. It’s great to see you again.
We have you on today to talk about applying for small business loans and we’ve had you on before to talk about kind of starting a small business.
So if you’re starting a small business, and you have questions about that go back to the last time
You see Aaron in the play list right and learn about that and then come back and watch this video where we’re going to talk about applying for a small business loan.
So I feel like the term small business loan is pretty self-explanatory but. Well let’s talk a little bit about them.
Small Business Loans: How Important Is This?
Why might a small business decide to go after a loan. What sort of things are they spent on. Talk a little bit of a jerk.
Couple of reasons that a business would need a loan and there’s really two different types of loan.
There’s there’s the typical term loan which is set payment for a set number year similar to a car loan.
OK. Sure. So a business could use that to purchase a piece of equipment or purchase a vehicle traffic or something.
Exactly. Exactly. And then the other type of loan is the revolving line of credit. And that’s more where the business would use money from the line of credit to pay short term expenses if they needed to meet payroll needed by inventory.
I’m kind of familiar with this I have some extended family in farming and they talk a lot about how you know you operate on credit part of the year so that you can operate on profit. The other part of the year do I have that kind of right in my right area.
It is similar with a small business there more months to months. So they would they might take him a month or two to get paid for a job that they’ve done.
In that short in the month before that they need money to big payroll or to try to buy inventory or whatever.
That makes sense maybe like a construction company that needs to buy materials or something like that and they’ve got to wait for their client to pay them.
What a financial institution requires for loans
So let’s say I have my small business, I need a small business loans. What are what’s the financial institution gonna want to see from me when I come to ask for that one of the biggest things are going to ask for our financial statements tax returns.
They want to look and see that the business is successful. They want to see that the business profitable and that it generates enough money to repay the loan.
So they’ll ask for the last two years last two to three years of financial statements and tax returns.
They’ll also ask for financial statements from the business owner who will most likely be the guarantor on that loan.
And I want to come. I want to come back to that word guarantor because I do have some questions about that.
But what you describe now the two years of tax returns are that kind of stuff that sounds like a like a big pile of paper right Granby. So.
So in addition to my big pile of paper what are they going to do. What are they going to ask me for. What are they going to see. What can I kind of expect after that.
Well they don’t want the financials and tax returns and they’ll want it it’s nice if you can bring in organized labeled just a nice little package are there is there services for them.
Quick Books is the most popular though do what you could do it yourself. You could do it yourself if you have a bookkeeper.
He was the keeper before because I was going to say I am not a numbers guy. And I feel like I would mess that up and I would want somebody else to do it for me.
But that’s I mean you could do it’s something you could do sure and it’s common for the small business to bring the bookkeeper with them to the initial meeting bring them along. That makes a lot of sense.
So I want to come back to this word that you used before Garin. Garin Toure I thought who said a guaranteed loan.
I think I’ve heard secured loan but your Tell me about that. Well I’m a little hazy. Sure. Yeah. So on the guarantee part.
What collateral you need to repay the loans
The guarantee is a person who will act as a secondary source of payment for the loan.
And what happens is if the business stops being the loans the business shuts down does it not paying the loan anymore the lender is going to go to the guarantor with the personal guarantees alone and the lender is going to say you still owe me this Mr. loan.
So is it usually the business owner then most of the time it’s a business owner. Yeah that’s that’s most common.
That makes sense. So what if I. A couple of questions just based on some things that I heard first of all what if what if maybe I’m a small business owner who is getting back on my feet after I don’t know some some poor credit earlier in life is me having bad personal credit going to make it harder to get a small business loan.
Yeah it does impact it and that’s that could be a reason to decline the loan. Oh you could. It’s common for a spouse to be a guarantor.
Well I mean in situations like that if the if the primary guarantee then predatory the primary guarantor isn’t have a strong enough credit then a spouse might.
So there are some there are some ways around that actually end up finding that that’s your your kind of roadblock right.
How how long can I can do these small business loans take from like the day I apply to when I get my my money. It could easily take up to a month longer.
If it’s real clean cut in the financials are in order. If it’s a smaller loan there’s no the Collateral on it than it might be easy.
It could be done and it seems like maybe the more simplified it is the faster the whole process might go.
Well that makes sense. And another reason to get into quick books. So we talked a little bit about the roadblock of maybe I don’t have good enough credit but what are some other roadblocks that small business right might run into when they’re trying to get a loan.
Probably the biggest is the length of time the business has been operating. OK. Lenders like to see more than two years. We talked about that a little last time you were on. Yeah.
I just want to see that business is up and running. It’s on its feet. It’s generating profits. Sure.
And that’s probably the biggest. For someone to come in and request alone in the businesses is a month or two old.
Yeah. So that’s a little shaky proposal for for any lender I think. So that makes a lot of sense that that would be a bit of a roadblock.
But we did talk on the last episode so again go back and check it out about some resources. If you don’t have those kind of two years tax returns and stuff like that.
I feel like I have learned a lot today and we’ve covered a lot of the basics of small business loans.
But folks at home are gonna have questions that we didn’t have time for today.
So do you have any kind of resources or kind of specific tips and tricks you want to share with the folks at home before we go. Sure.
I think the most common is the SBA and they have an organization under the SBA it’s called SCORE.
And we talked about this before but just walk me through it one more time what is SBA score.
So the SBA is a government organization Small Business Administration in one of their one of the entities under them is a score.
And they have an office in Denver and it’s basically where we’re one of the services the score provides is business owners can go there and meet with a retired executive who has business experience.
And can provide consulting just advice. So you can just get some advice on being a small business free advice.
Yeah well I can’t do much better than free and it feels like those are the people that are gonna give you the best advice or people who are also small business.
Yes. And that makes a lot of points in the right direction and do this don’t do that. That sounds great.
I learned so much every time you come on the show so I’m gonna ask you right now will you come back sometime.
Absolutely wonderful hearing it was so great to see you. Thanks for coming on. Thanks Jack.