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updated 2/13/2004 2:28:19 PM ET 2004-02-13T19:28:19

Small business owners wanting to borrow money from a bank or other lender should expect to lay some groundwork long before making a phone call or filling out an application.

First, you need to ask yourself what you need the money for. The answer will help you determine what you need to do — and also, whether you’re going to be able to borrow at all.

If you’re hoping to borrow money to start up a business, most banks will be unwilling to take a chance on an unproven enterprise.

“The only way it’s going to happen is if the loan’s completely collateralized ... and you have enough personal wealth to cover the loan,” said Ed Paulson, a small business owner and author of “The Complete Idiot’s Guide to Starting Your Own Business."

That means loans to buy equipment or real estate. If you’re looking for startup money only, you’ll need to get the cash privately, or, like many entrepreneurs, use credit cards or home equity loans to fund your venture.

You’re more likely to get a loan if you’ve been in business for some time, are successful and have good financial records that show you have a healthy cash flow (which you need to service your debt). Many people who advise company owners point out with some irony that you’re more likely to get a loan when you don’t desperately need it; the good news is you’ll get money when you’re ready to expand your business or fund a new project.

But before you even approach the lender, you need to assess not just your company’s finances, but your own.

“For most types of small business loans, most lenders will look at the personal credit history of the owner or guarantor,” said Linda Soldatos, senior vice president for small business financial services at Chase bank in New York. “If there are significant blemishes, it will be difficult but not impossible to get a business loan.”

Those blemishes could be a personal bankruptcy or a severely delinquent payment record.

Soldatos said lenders want to see evidence that you’re serious and reliable. For example, she said, “putting some of your own money into it (the business) shows financial responsibility.”

As Paulson put it, you need to have run an excellent business.

But you’ll need more than just a good track record — the bank or other lender will want to know if you’ve prepared your company for the future, if you’ve really thought out what you’re going to do. And so you’ll need a business plan, a comprehensive discussion of all aspects of your company, including marketing strategy, competitive analysis, design and development plans, operations and management and finances.

Writing a business plan, which should be a very detailed document, isn’t something you can expect to accomplish quickly. It’s a good idea to get some help in putting one together. One resource is the Small Business Administration Web site, www.sba.gov, which has advice on writing a plan.

Bookstores and libraries have books that can help. Or you can get free help from Small Business Development Centers located at universities and colleges around the country; a list is available at www.sba.gov.sbdc.

The retired executives who work for SCORE can also give advice on business plans. They can be reached through www.score.org.

Unfortunately, many businesses are looking for loans because they’re struggling. And that’s another time when lenders are unlikely to lend money to a business — their attitude is not unlike the adage about throwing good money after bad. Still, you might have some resources.

Paulson noted that lenders known as factors might be willing to lend money to companies, using the businesses’ accounts receivables as collateral. What factors in effect do is take over the receivables, issuing the invoices and receiving payments. But the firm has gotten money it needs to survive.

But be aware that, in order for a factor to agree to work with you, your customers need to be creditworthy. If they don’t have a history of making their payments, and making them on time, factors won’t accept your receivables, and they won’t lend you money.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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