According to a recent Wells Fargo/Gallup national study, “Diverse Small-Business Owners Share Their Experiences,” 71 percent of women business owners say they feel very satisfied as a business owner and 89 percent would own a business rather than do anything else. Yet, surprisingly, the survey also found that women are largely unaware of the many resources available to help them access capital, and even expressed less overall interest than men in learning about credit-related issues, particularly choosing the type of credit that is best for their business needs (although both are low, at 17 percent versus 28 percent).
In today’s economic environment, acquiring capital to operate and grow is one of many challenges businesses face. To maximize the chances of being approved for a loan, it’s important that business owners be prepared to answer these questions that lenders will typically ask: How much do you need? What will you do with the financing? How will you pay it back?
How much do you need?
This the most fundamental question. Having a precise answer is the business owner’s first step in proving she is prepared. If the business owner is not sure how much to ask for, she should revisit her business plan and business financials — considering what capital is available and what is projected to be needed to reach the business goals.
Why do you need it?
This is really a two-part question. Lenders are interested in knowing whether the business owner is seeking financing to solve a problem or to seize an opportunity.
It’s important to maintain an up-to-date business plan and revise it regularly as the business grows. Those just getting started can find guidance online, such as a step-by-step guide available on the Business Plan Center at WellsFargoWorks.com.
How will you repay your loan?
The last question requires the most detailed documentation. Current financials will show how much cash the business generates now. It is also necessary to prepare cash flow projections: best estimates of how much it’s anticipated that the business will generate after receiving the loan. This should include principal and interest payments in the forecasts, keeping the loan terms within bank policy guidelines.
If the loan is secured by collateral, the business owner should be prepared to explain exactly what tangible assets she can offer as a guarantee. Examples are equipment, a house or a car. In addition to collateral, the business owner should also be prepared to share how much cash she will personally put into the business. When outlining debts and assets, therefore, it is helpful to include personal financial information as well. This will help the lender get a sense of the business owner’s personal financial stability.
It will be important for the business owner to explain clearly what she intends to do with the loan and why she expects the venture to succeed. It is also important she be prepared to discuss her own business qualifications. Because the success of a small business largely depends on leadership, the business owner’s skills and knowledge are an important part of the company’s profile.
Resources for Women
Today, there’s a growing list of government, nonprofit and private organizations that provide resources for women in business. Here are a few to consider:
Financial service providers that have a special focus on women-owned businesses: More financial institutions are recognizing the importance and growth of the segment — nearly 30 percent of businesses are owned by women today. As a result, more financial institutions are adding services and programs specially geared toward helping women learn about financing options and how to obtain a small business loan. At Wells Fargo, for example, we set a commitment to lend a cumulative total of $55 billion to women-owned businesses by 2020, in addition to offering numerous resources for small businesses in general.
U.S. Small Business Administration: The SBA operates Women’s Business Centers across the country — a network of educational centers designed to assist women in starting and growing small businesses. When a business owner is ready for a loan, she may want to consider an SBA loan, which is offered through banks and other lending institutions. SBA loan products, such as SBA 7(a) and 504 loans, can be good options for some creditworthy small-business owners who may not able to obtain conventional loans or loan terms that meet their business needs.
National Association of Women Business Owners: With more than 5,000 members and 60 chapters, NAWBO is a valuable resource helping to propel women business owners into greater economic, social and political spheres of power worldwide.
Jennifer Anderson is senior vice president and Business Banking manager for Wells Fargo in Arizona. She is responsible for Wells Fargo’s 200-person Arizona Business Banking team serving businesses with annual revenues up to $20 million, and specialty units serving governments, nonprofits, agribusiness and professionals. The team is housed in 13 Business Banking offices across Arizona.