HOW TO MAKE SMALL BUSINESSES BANKABLE

According to FDIC’s 2019 Report on How America Banks: Household Use of Banking and Financial Services, an estimated 5.4 percent of U.S. households (about 7.1 Million households) were unbanked. This, however, was a significant improvement from ten years earlier where the unbanked rate stood at 7.6%.

The survey revealed that lack of trust in banks, high bank fees, high minimum balance requirements, and credit score were some of the reasons for being unbanked. It’s therefore likely that any entrepreneurs from these households would consider other alternatives especially when the need for credit arises.

Some small business capital providers and financial services companies see this as an opportunity for long-term business. These companies have introduced financial advisory services to raise the profile of the hitherto unbanked or underbanked entrepreneurs, eventually making them the envy of the banks.

The following are some of the guidelines non-bank financial institutions use in making a small business bankable.

Importance of Business Plan

A good business plan is a roadmap that provides directions so that a business can plan its future while avoiding bumps in the road. This may include a description of the nature of the business, the sales and marketing strategy, projected profit and loss statement, location, sources of seed capital, and competition.

A good business plan guides you through each stage of starting and managing your business.

Credit Score Report

A good credit score of perhaps above 670 lends legitimacy to your request and shows that you are less of a financial risk to the lender. Bankers and other lenders determine the creditworthiness of a customer through the FICO score. They will want to see that you have a history of meeting your obligations.

Creditworthiness is the lender’s willingness to trust you to pay your debts.

-Experian

While banks will shy off from lending to clients with a poor credit score, other non-bank financial institutions may either lend to them at a higher price, lower the loan amount or ask for more collateral.

Credit repair services and credit builders on the other hand significantly help potential borrowers with poor FICO scores by working on and improving them through various techniques.

Business Structure & Brand Identity

Burgeoning entrepreneurs need to determine their business structure option and build a brand for their business so that their future clients can easily identify with it. This includes the business name, logo, and tagline. They also need to register their business and get the Federal and State tax ID.

These are important steps because their registered business identity cannot be duplicated elsewhere. The next important milestones are to open a business bank account and apply for licenses and permits.

Prudent Business Management

Small business management requires business owners to provide oversight for several functions in the business. It’s also important for the entrepreneur to manage their finances strictly according to their business plan projections.

They’ll need to hire a lean team and identify effective but affordable methods of marketing such as personal networks, social media, and commission-based referral programs. They should pay taxes and stay legally compliant.

The US Small Business Administration helps Americans start, build and grow businesses. This institution plus many others offers useful tips to entrepreneurs on how to manage their businesses including getting small business loans.

Finally, borrow when it’s time for business expansion

Once the business breaks even and the net income starts to grow, it may be time to consider expanding by opening new outlets or venturing into new product lines and markets.

There are therefore several financial services sector players out there who continue to nature and develop business relationships among the unbanked or underbanked.

Watch out for more articles on making small businesses bankable.