While small businesses owners continue to face challenges in an uncertain economic environment, today a significant number of companies in South Florida and elsewhere are getting loans. The businesses that are applying for loans today are stronger than they were a year ago, and as stronger businesses apply for loans, more small business owners are receiving approvals.
According to the latest Wells Fargo/Gallup Small Business Index — a quarterly survey of small business owners nationwide — cash flow and revenue are key concerns. And more than one in three small business owners (34 percent) indicated that getting credit was “somewhat or very difficult.”
To help more small businesses join those who are hearing “yes,” here are the five things owners need to know when applying for a loan or line of credit.
1) Steady cash flow: Cash flow is a key indicator of a business’ health and its future prospects. Businesses that show reliable cash flow demonstrate that they have the resources to pay for new loans.
2) A manageable debt load: Banks want to ensure that businesses have the ability to take on additional debt and are in a strong financial position to manage debt payments.
3) A good payment history: Before extending credit, a financial institution needs to be confident of a business’ ability to repay. Payment history provides a record of ability to responsibly pay down debt. Obtaining a business debit or credit card is a good way to begin building a payment history.
4) Demonstrate business acumen: Banks want to see that potential challenges have been anticipated and that business owners have the management skills to overcome obstacles and pursue opportunities. Have a business plan that addresses major challenges your business may face.
5) Build a solid banking relationship: Having a long-term relationship with a bank — for both business and personal accounts — will help create a track record of financial management and creditworthiness.
Here’s one final tip: Business owners who find that debt, cash flow or payment history are the barriers to securing a loan should take a good look at their business model. Are new revenue streams available? Are there other opportunities to control costs? Will a change in product mix, pricing or staffing improve profitability?
To get approval on small business loan applications don’t hesitate to contact the small business expert at your local bank — he or she may help you consider all the alternatives that will improve business and the likelihood of getting an approval.
Frank Newman is regional president at Wells Fargo, South Florida.