Return to 143 articles to start your own home based business opportunity directory A Guide to Business Credit for Women, Minorities, and Small Businesses [Graphic Omitted] The need for financing is a critical and perennial concern for the owners of small businesses. Indeed, few things are as crucial to the health of a small business operation. Many small businesses are launched by the personal resources of their owners. But they can quickly reach the stage where the owner must look to the credit market for financial help in expanding operations. The banking industry is an important source of working capital. However, entrepreneurs may not realize that applying for commercial credit is a more customized process than obtaining consumer credit, and requires a great deal of preparation by the business applicant. This brochure may help to de-mystify the process and improve your chances of getting the credit you need. Types of Loans Banks and other financial institutions can assist you by providing funds through personal or commercial credit. Examples of personal credit include automobile loans, credit cards, and home mortgages. Commercial credit includes business loans; here are some of the options: Short-term loans are one of the most common types of business loans and are usually for less than one year. They can provide interim working capital for a business temporarily in need of cash, and are typically repaid in a lump sum when inventory or accounts receivable are converted into cash. Intermediate-term loans are often used for a business start-up, the purchase of new equipment, expansion, or an increase in working capital. The maturity dates range from one to three years. Long-term loans generally are made for major capital improvements, acquiring fixed assets, or business start-ups. The term of the loan runs for periods of three to five years and is usually based in pan on the life of the asset financed. Repayment is usually made in monthly or quarterly installments. A line of credit offers you the ability to borrow money repeatedly, up to your credit limit, without having to reapply. A line of credit is particularly important to businesses that experience seasonal fluctuations. The lender generally will perform a review once a year, at which time the borrower is asked to provide updated financial statements. The Credit Application Process Applying for commercial credit can be tedious. It calls for more documentation than you might initially have expected and certainly a lot more than when you apply for consumer credit. For lenders, extending credit to an entrepreneur usually means customizing the loan to suit the credit needs of that business. So don't be disheartened by the amount of paperwork needed to accompany the application. Instead, be prepared! Among the best assets you can bring to the lender is a well thought-out and documented business proposal. You need to clearly state the purpose of the loan (will the money be used for temporary working capital, buying equipment, or expanding facilities); the amount of funds needed and for how long; and a repayment schedule. Your business proposal should include the following information: * business description that tells the nature of the business, describes the product and its market, identifies its customers and competition. * personal profile that outlines the background and experience of each of the principals in a resume. * proposal that states the type of loan requested and its purpose. * business plan that outlines your corporate strategy. for the next three to five years; it will aid you and the lender in determining whether the business will generate the cash flow needed to repay the loan. * repayment plan that tells how you propose to repay the loan or outlines a repayment schedule. The lender will be expecting you to repay the borrowed funds from the profits produced by the business. As a contingency, you might need to develop a plan on how you would repay the loan if the profits alone turned out to be inadequate. * supporting documentation will include copies of pertinent papers that support the information contained in your loan proposal--for example, a lease, certificate of incorporation, partnership agreement, letters of reference, contracts, invoices or vendor quotes. * collateral that you will use to secure the payment of the loan. Collateral can include business and personal assets such as inventory, equipment, and accounts receivable or real estate, stocks, bonds, and automobiles. * financial statements, both personal and for the business. The business financial statement should be provided for the last three to five years of operation including a year-to-date interim report. It should contain a balance sheet showing business assets and liabilities, and a profit-and-loss statement showing revenues and expenses. The lender uses this information to calculate a debt-to-worth ratio for the business. Be prepared to provide copies of tax returns for the business for this same period. The personal financial statement should list your assets and your liabilities. Identify the names in which title to each asset is held and its fair market value. You should be prepared to provide copies of your personal tax returns. You may be asked for a list of credit references. Lenders will check your personal as well as your business credit rating. Lenders will carefully examine your financial statements and business projections. As a borrower, you must be fully prepared to answer questions about them. * personal guarantees of the owners or other principals usually are required, even from an established business. The lender also may request another party's guarantee such as a cosigner or a surety, or may request a government guarantee from the U.S. Small Business Administration or other government agency. In addition to the personal guarantee that you give, under the Equal Credit Opportunity Act the lender is allowed to require another person's guarantee should your application fail to meet the lender's standards of creditworthiness. If all or most of the assets listed on your personal financial statement are owned jointly with your spouse, or with someone else, the lender is likely to require such a guarantee, But the lender may not require that your spouse be the guarantor, In the case of secured credit, the lender is allowed to obtain a spouse's signature on certain documents when the applicant offers, as security for the loan, property that the two own jointly, In this case, the spouse or other co-owner may be asked to sign documents--such as a mortgage or other security agreement--that would be necessary under applicable state law to make the property available to satisfy the debt. Sources of Technical Assistance Before you approach a lender, you might want to seek the advice of another, more experienced "set of eyes" to review your business proposal, particularly if you are a first-time borrower. By doing so, you'd be getting the loan package in shape to make it easier for the lender to reach a favorable credit decision. There are some business support groups whose members could counsel you on how your package looks. A qualified counselor might even discover that you really don't need more money, and instead suggest better inventory control, improved marketing techniques, or other changes that could actually solve your growth problems. One source of counseling available to small businesses is the Service Corps of Retired Executives (SCORE), which is sponsored by the U.S. Small Business Administration. Others might include accountants and financial advisers. Once you are satisfied that your proposal is in good shap

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