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Steps for obtaining a loan to grow your business

Question: My business is growing, and I need to raise capital for a successful expansion. What does SCORE suggest as the best way to go about this?

Answer: Getting a loan from a bank in today's market can be difficult even if you are an established business. New start-ups almost always will have to depend on other sources. Banks are primarily interested in cash flow. In other words, they want to know where the money is coming from to service the loan. Therefore it is vital that you include a projected cash flow statement in your loan proposal. Any lending source will want to see a well-drafted, comprehensive business plan.

Preparation and organization are the keys to raising capital. Before you apply to either a bank or an investor, you need to know exactly how much money you'll require, list the reasons you need it, and state how you plan to pay it back. Then you also have to be able to convince your lender that you're a good credit risk.

An article for Dunn and Bradstreet (www.smallbusiness.dnb.com) states that "getting your loan request approved depends on how well you present yourself, your business and your financial needs. Lenders want to make loans, but they're only going to make loans they know will be repaid."

The article states that the best way to maximize your chances of getting a loan is to prepare a written proposal, and advises that a well-written loan proposal should include a number of things:

• General information

Business name, names of principals, Social Security number for each principal and the business address.

Purpose of the loan: exactly what the loan will be used for and why it is needed.

Amount required: the exact amount you need to achieve your purpose.

Business description: history and nature of the business, its age, number of employees and current business assets.

• Ownership structure: details on your company's legal structure.

Management profile: a short statement on each principal in your business, including background, education, experience, skills and accomplishments.

• Market information

Clearly define your company's products as well as your markets.

Identify your competition and explain how your business competes in the marketplace.

Profile your customers and explain how your business can satisfy their needs.

• Financial information

Balance sheets and income statements for the past three years. If you are starting out, provide a projected balance sheet and income statement.

Personal financial statements on yourself and other principal owners of the business.

Collateral that you're willing to pledge as security for the loan.

The Small Business Administration (www.SBA.gov) provides a checklist to help you obtain all the necessary information needed before you go to a lender. You will need to work through a local lender who works within SBA guidelines. Although SBA does not loan money directly to small business owners, they play an important role for those who want to finance or grow their business. Applying for an SBA-backed loan at your local bank or credit union means you are asking SBA to provide a guarantee that you will repay your loan as promised.

Your SCORE counselor functions as your advocate and can assist you with the steps you need to take to secure the financing to grow your business. SCORE also provides several business plan workshops over the course of each year that covers all aspects of developing your business plan.

SCORE is recruiting volunteer counselors. Are you working or retired, have corporation, small business, nonprofit or other business experience? SCORE offers a unique opportunity to become involved in your community and share your knowledge, experience and leadership skills. Contact Northern Arizona SCORE at 778-7438, score@northlink.com or www.scorenaz.org.

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