When I finished writing my Loan Financing Guide for Small Business Owners, I realized that the book is only a small step toward the achievement of my goal to develop training tools and resources that are easy to grasp and actually work. Small business owners need support and I decided to be the person to help them.
My book tour has taken me to the streets of large cities like Boston and Miami and small towns like Cambridge and Somerville in Massachusetts. I’ve documented many questions from small business owners about loan financing. In response, I’ve written articles and developed a seminar entitled, Preparing a Powerful Small Business Loan Request.
Here are three answers to frequently asked questions.
Answering Small Business Owners’ Questions
1. If there is one thing I need to remember when speaking with a lender, what would it be?
If there is one thing I can recommend, it’ll be the following – show lenders by your every action that you will do everything possible to repay the loan, (edit) as well as how you plan to fulfill this promise. Don’t bother verbalizing this: Words mean nothing to a lender. Actions are the most persuasive statement.
Ways to demonstrate to a lender your trustworthiness:
• Repayment of business loans in the past.
• Repayment of personal loans in the past.
• Absence of or no recent delinquencies.
• Absence of or no recent derogatory information from personal or business creditors.
• Timely payments to your suppliers.
• Verifiable examples of difficult personal and business situations that threatened loan repayment, but you kept your word and paid off your debt obligations.
2. I am starting a company. Should I tap into loans from my family members and friends or should I go directly to a bank or another financial company?
Should you decide to seek loans from family and friends, consider creating legal documents to detail the terms of a loan or find a lawyer who can help you with this task. It may be wise to make arrangements for automated loan payments instead of dealing with check-writing on an on-going basis.
It’s important to know that payments on loans from family and friends do not allow you or your company to build credit history. If you decided to take advantage of loans from family and friends, Circle Lending of Waltham, MA is one of the companies that can help you streamline the legal paperwork, automate payments, report your payment history to credit bureaus, and provide other loan administration services.
If you have both options (traditional lenders and family and friends’ loans), decide which option is less expensive, less time consuming, and will benefit your company in the long-term. Summarize pluses and minuses and make a choice.
3. I like using credit cards to finance my business, but my financial advisor tells me not to. How can I persuade him that credit cards are not a bad idea?
I agree with your financial advisor. Business credit card debt is quite easy to secure and increase; however, the moment you slip and send your payment late, the promotional rate will quickly turn into the 20%+ default rate with a variety of punitive fees. At that point you may be struggling to keep up with interest payments with little chance of repaying the principal.
There are examples of successful business financing with credit card debt, but those small business owners used credit cards on a limited basis and as a temporary source of financing. Credit card lines are similar to line of credit loans – short-term financing vehicles. But, unlike lines of credit, they are usually much less forgiving when you make a mistake. I have seen small businesses fold under the burden of credit card debt too many times to soften my opinion about credit card financing. If you decide to use credit card debt as a limited financing tool, I urge you to read the credit card agreements, particularly focusing on rate and pricing structure, provisions in case of default, and your rights and responsibilities. Do not fall into the 0% interest and $0 fee promotional trap!
Do you have a question or concern about small business financing? If so, I’d love to hear from you. Like Tom Cruise crooned in Jerry Maguire: “Help me help you!” I encourage you to send me your questions concerning the challenges you face in your search for loan financing, suggestions on training products that would help you secure loans, or types of financial products and services that could help you become more successful.
Look for the next installment of Neil’s column on the Business Page of the Good News Network, where we team up to help you and your company reach the next step toward your financial goals.