Many people dream about a job that fits their special skills and needs. But entrepreneurs face daunting odds: An estimated four out of five businesses fail. Why? Poor management is cited most often, while inadequate financing is a close second. If you can work on perfecting your management skills, your credit union may be able to provide you with the money you need to start your own business.
How to Get a Small Business Loan
First, you’ll need to write business plan. This plan should explain how you will manage, operate, and finance your company. Call OUR Credit Union and ask what our lending officers look for in a plan. There is a lot of free assistance available in creating a business plan, such as through SCORE--Service Corps of Retired Executives.
To obtain a loan, make sure your plan answers these 10 questions:
1. How much money do you need and what is the owner's capital commitment? A rule of thumb is that 20% to 30% investment in the company needs to come from the owner, from either personal cash and savings or equity in the business.
2. What will you use the money for? Give a clear description of how you'll use the money and how you intend to pay it back.
3. How will the loan affect your financial position?
4. What will you pledge as collateral? You'll have to pledge some tangible asset--such as stocks, certificates of deposit, or property--to obtain a loan. If the loan is for the purchase of equipment or real estate, that can become collateral.
5. How will you repay the loan?
6. When will you repay the loan?
7. If you don't realize projections, can you still repay the loan? For example, do you have a spouse with outside employment?
8. How much can your business afford to lose and still remain viable?
9. How will the business manage risk?
10. For an existing business, how has it performed to date? Is the financial position of the business improving or declining?
Preparing to Meet with the Lender
You’ll need to provide the following information when you visit the credit union to apply for a business loan:
• Purpose of the loan
• History of the business
• Projected opening day balance sheets
• Lease details
• Amount of investment in the business by the owner(s)
• Projection of income, expenses, and cash flow
• Signed personal financial statements
• Personal résumé
• Names and contact information for at least three credit references
• List of business and personal assets that could be used as collateral
For existing businesses, also bring financial statements for the past three years, schedule of term debts, and aging of accounts receivable and payable. OUR Credit Union offers a variety of business products and services to help make your dream a reality! The next time you're in the credit union, ask what resources we offer to get your business dream started.
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