The bank will give me a small business loan

Virtually every small business loan is based on collateral, which most businesses never have. That's why most banks will only issue a small business loan in an amount that you can secure with your house or with fixed asset collateral from a business. As with any other type of loan, good personal credit history is a must for a small business loan. Before you can even think about approaching a bank though, you'll need to understand the process below:

Small business loan basics

Valuation

The bank will want to set a valuation on your business and you'll need to have at least the following documentation dating back a minimum of three years (if you have an existing business):

A list of customers, all financial statements, tax returns for the business, documentation of any outstanding business debt, and a comprehensive list of all fixed assets (will possibly be used as collateral).

The bank will use this along with your business plan to help determine a realistic amount to issue for the loan.

Business Plan

Your business plan is a crucial piece of the puzzle when approaching a bank. Banks want to see that you have a well thought out plan for how you are currently or how you intend to make the business profitable and repay the loan on time. You'll need to outline your sales and marketing strategies and also provide realistic financial projections for revenues and expenses over the next few years. These numbers may not be "dead on", but they had better at least be feasible. Remember, banks are conservative.

Distribution of loan proceeds

What is the loan going to be used for? Please, no matter what you do, don't state that you'd like to use the loan for your own immediate salary! This is a sure-fire way to get your loan request denied. Banks want to see that the business is profitable and the loan can be repaid before you even think about using the cash to cover your own compensation.

Only use loan proceeds to purchase equipment or other assets that are absolutely essential to the survival of your business. We cannot stress this enough! If you are bio-tech company, an office refrigerator is not crucial to your sales and profitability. Banks will frown upon this use of funds.

Once you get your ducks in a row, it's time to start shopping around to a handful of banks. Not every one of them is going to bite, so you'll have to have some persistence.