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Category :  Basis of your Small Business
Article: v1-SSB-BSB-00011

Minority small business loan


Taking of loans for small business is not easy and certain requirements that need to be satisfied. These days there are several banks and credit institutions that would suffice your needs for loans. You however, will have to apply for the loan, and if you qualify for the loan you will get it. Some of the small businesses whom the bank rejects don’t understand why did that happen? Some get loans and will later find that they are many strings attached to the deal.

In order for one to understand these loans, it is very important that one is familiarized with the seven fundamentals of borrowing. These seven are further explained below:

  • Credit worthiness,
  • Kinds of loans,
  • Amount of money needed,
  • Collateral,
  • Loan restrictions and limitations,
  • The loan application, and
  • Standards which the lender uses to evaluate the application.
Credit worthiness:

The first thing that a bank is going to check is if you’re worth giving the credit to. All money lending organization or a bank will do this as they are doing a business too. They will make sure that if they give you a loan you will be able to repay them. When you visit the people at the bank or at money-lending institutions, the discussion will be based on five questions:

  • The borrower’s background and your ability to manage a business
  • What are you will do with the money borrowed
  • What is the time frame and in which manner will you pay it back
  • The amount requested should be suitable to make allowances for unexpected developments
  • Your outlook on a business and especially at your business particularly
The answers that you give to the question above will decide your fate in getting the loan and if any limitations or restrictions if applicable to you.

Kinds of loans:

There are three kinds of loans that are offered in today’s market: short term, term money and equity capital.
  • Short term loans are usually given to be paid back after a month or two. The loan could be taken to finance your accounts receivables.


  • Term money is generally divided into sections; one caters to loans for more than a year but less than five years, and the other more than five years.


  • The term “Equity Capital” is sometimes confused with term borrowing. In equity capital, you employ people who are willing to invest and recover the investment on the interest they will get.
Amount of money needed:

The money that you need will depend on what business you are trying to pursue. To figure out an approximate amount, you can ask various manufacturers to quote their prices and with those figures in mind you can have an estimate of how much is it going to cost to set the business up. While evaluating this and other needs, you will then arrive to an approximate value of how much you need. This amount will reflect what kind of an amount you are looking at.

Collateral:

Collateral is the security pledge that will be used as security so that you will pay back the loan. Sometimes the only collateral that the bank would need from you would be your signature. However, in some cases the bank will ask for certain guarantees and documentation so that the security pledge is bridged evenly. The securities could include but are not limited to endorsers, co maker, and guarantors; assignment of leases; trust receipts and floor planning; chattel mortgages; real estate; accounts receivables; savings accounts; life insurance policies; etc.

Loan restrictions and limitations:

Most institutions in the business of lending money are not only interested in getting the loans back; they will also make sure that you will pay them back by making sure that you make a healthy profit. They do this by putting limitations and restrictions on the way you would do business and refrain from bad management. For some these restrictions and limitations are considered a burden. This however should be seen as a valuable time for improving your management techniques.

The loan application:

Once you have clearly understood what the loan aspects are you are then ready to fill the application form. The application form will have you list certain information that is necessary for giving you the loan. If you are confused by the form you can seek advice from the banks customer service. Do be aware that the SBA’s form is much more detailed as the lack of prior knowledge of the customer is not known.

Evaluating the application:

Once the application form has been filled, the application will be evaluated. No matter which institution is reviewing the form, the form is always reviewed on the following points:

  • Revenue of the company in the past.
  • Collaterals offered for security.
  • Debt paying to suppliers
  • Ratio of debt to net worth
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