How to get a small business a loan

Lack of funds for starting and developing a business is a frequent problem among small companies. Many see a way out of this in obtaining a loan. Although today, small businesses get a loan is quite problematic.

Lending to small businesses for banks is fraught with high risks, so their approval is extremely low. After all, small companies often go bankrupt, which leads to non-repayment of borrowed funds. As a rule, banks give small businesses limited amounts for a short period.

Making a loan for a small business

It is almost impossible to get a loan for a small business just starting out. In this case, even a detailed business plan will not save. As a rule, restrictions are made on the duration of a company or individual entrepreneur in the market (from three months or from a year). Exceptions are rare. For example, there are programs that allow you to get loans for beginners to start a franchise business.

It is worth noting that banks require that the business should not only be operational, but also already begin to make a profit. Therefore, one of the mandatory requirements is the provision of accounting or management reporting. The company is also required to have a positive credit history and the absence of past due loans.

A business plan is not always required from a borrower, only if he takes a loan to implement an investment project. But if money is required to replenish working capital, it is not needed. Investment loans are characterized by longer terms. But banks do not provide loans for the entire project and require their own funds (up to 30-50% of the project cost).

Working capital loans are also called a line of credit. Its amount on average is 50% of the average monthly turnover on the current account. It is provided for a limited period of time - up to 3-6 months and is renewed after debt repayment. Only stable companies can apply for a credit line.

The conditions under which the loan will be provided will largely depend on the financial condition of the company, the terms and amount of loans.

There are two groups of loans for small businesses - collateral and unsecured. The latter are quite rare, differ in small amounts of lending and often require guarantors. Of course, on mortgage loans, the interest rate is more loyal to borrowers. Indeed, in the event of defaults on a loan, the bank may apply for collateral (it may be real estate, machine tools, cars, etc.)

But even in the absence of collateral and guarantors, you can try to get a loan from the bank. Only arrange it as an inappropriate consumer cash loan.

Making a loan on yourself as an individual

Interest rates on loans to small businesses can not please borrowers. Therefore, sometimes it is more profitable to take a loan to the individual entrepreneur or director of the LLC as an individual. This will also reduce the package of documents requested by the bank.

The procedure for obtaining such a loan is no different from a regular consumer loan. Often only a passport and proof of income are required. It is with the confirmation of income that IP can have difficulties, because he does not get paid.

The disadvantage of this option is also that this loan cannot be taken into account in calculating the tax base. Other disadvantages are the limited amount and timing of loans, which may seem insufficient for companies. It is also worth considering that even with the bankruptcy of the LLC, the director will need to continue paying.