However, many small business owners often make the mistake of not being adequately prepared when going to the bank to the loan. Surprisingly, many loan applicants don't even have the slightest idea how or when they intend to repay the money they requested. Often they don't even know how much money they need. When asked how much money they want to borrow, many people give these two common responses: "How much money can I get?" and "As much as possible." Is it any wonder that lenders say no?

The bottom line is that it pays to do your homework before you ask for a loan. Bear in mind that the probability of getting your loan approved goes up if the degree of risk associated with lending you money goes down. To lower your risk and improve your odds of getting the loan, you need to anticipate the question lenders will ask you. You need to present your banker insights into your business that may enable him or her to easily approve your loan. For example, prior to filling out a loan application, you should know:

1. Exactly how much money you need? Be as exact as possible, adding a little for contingencies and the unforeseen extra expenses.

2. How you plan to use the money? Telling the banker that you want a loan to "have working capital" to the fastest way for your loan to be denied. There are only three things you can do with a loan - to buy new assets, pay off old debts, or to pay for operating expenses. Be specific as possible.

3. How long it will take you to repay the loan? Your cash flow projections will help you formulate a repayment time frame for the loan. This is the time when you need to convince the banker of the good potential of your business and its long-term profitability.

4. What rate of interest rate can you afford? There is no sense in tying yourself up in a loan that will squeeze out your profits and bleed your business dry. It does not benefit you to take on debt that cannot be repaid.

5. What can you use as security for the loan? A loan is a risk, and the bank needs to make sure that they can get their money back. You need to present your personal guarantee to repay the loan and collateral. Your goal is to convince the banker of the value of your collateral.

Of course, don't forget to present that all-important written business plan explaining in detail your business objectives, projected earnings for the next one to three years, marketing strategy, and other relevant information. Be sure your marketing strategies are outlined in detail to lend credence to your sales projections.

In addition to your business plan, you need to support your loan application with numbers - preferably good ones. Part of that homework is to gather the financial data that will enable you to prove to lenders that you are a good credit risk. In short, this entails putting together a credit history that includes the following:

• Personal financial statement listing your assets and liabilities
• A list of all credit cards and their current balances
• All outstanding loans, including original balances, amounts outstanding, and current monthly payments
• Total monthly mortgage or rent payments
• Net monthly income from your home-based business, an outside job or other sources
• Checking and savings account balances
• The value of your automobile(s), including original cost, balance owed, and current monthly payments
• The current value of all property, including real estate, stocks and bonds

Getting a loan is going through a hard road. Bankers need to be sure that they are not taking inordinate risks with you. Your role as the loan applicant is to convince the bankers that you and your business are good credit risks.

Without a previous track record in business, securing a bank loan may be difficult. Banks cite risk factors and increasing costs of servicing small accounts as the primary reasons for minimizing their exposure to small businesses. Still, it can be done. Here are the steps that you should take to improve your chances of getting that much-needed bank loan:

1. Keep in mind that to stay in business banks need to make loans. Do not be afraid to ask for one. That is what the loan officer wants you to do. To increase your chances of getting a loan, look for a bank that is familiar with your industry and who has done business with companies like yours. Seek out banks that are active in small business financing. Some banks lend on a conventional basis (lending money without government support), while some banks participate in government programs (in the form of government participations involving direct government funds or loan guarantees). However, be aware that banks often demand stiff collateral requirements for start-ups.

2. As an entrepreneur, make sure that you are thoroughly prepared when you go to your banker's office to request a loan. You need to show your bankers that a loan to you is a low-risk proposition. Have on hand a completed loan application, copies of cash flow and financial statement projections covering at least three years, and your cover letter.

3. Learn to anticipate every question that he or she has. Remember, the combination of information and preparation is the most powerful negotiating tool in the world. A confident and thoroughly prepared borrower is four times more likely to have his or her loan approved than a borrower who does not know the answer to some of the basic questions a banker asks. To show the extent of your preparedness, your business plan should also include answers to your banker's questions. These questions normally are:

• How much money do you need? Be as exact as possible; although adding a little extra for contingencies will not hurt.
• How long do you need it for? Be prepared to go into detail about what the money will do for you and why your business is a good risk.
• What are you going to do for it? Businesses use loans for three things: to buy new assets, pay off old debts, or pay for operating expenses.
• When and how you will repay for it? Your cash flow projections should provide a repayment time frame. Convince the banker of the long-term profitability of your business and your ability to repay the loan by using your financial projections and business plan.
• What will you do if you do not get the loan?

4. Do not take an apologetic and negative attitude. Keep your negativity in check. Present yourself as an entrepreneur who can and will repay the loan. Boost your image by providing your loan officer with any promotional materials about your business, such as brochures, ads, articles, press releases, etc.

5. Dress in a professional manner for the interview. This is a business transaction, so treat it as such.

6. Do not stretch the truth in your loan application. Broad, unsubstantiated statements should be avoided. The lender can easily check many of the facts on your application. If you cannot support statements with solid data, then don't make them. Do your homework and spend time doing research to be able to support everything you say, including every single number in your projections. It is best to keep projections, assets lists and collateral statements on the conservative side.

7. Be sure all your documents are neat, legible and organized in a cohesive and attractive manner. Type all your loan documents. Handwritten documents look unprofessional. Don't forget to include a cover letter.

8. Do not push the loan officer for a decision. Doing so might result in a rejection. Your banker cannot make a decision until all your documentation is complete. To ensure a speedy decision, make sure that your application is complete.

9. Be confident. An attitude of confidence enhances your chance of getting the loan. Show that you can make a success out of the money that the bank will lend to you. Visualize in your mind the positive results of your bank application.

10. Keep trying one lender after another until you get your loan. To improve your position as you change bankers and banks, the best way is to ask for a referral from a successful entrepreneur. Before you decide to approach a bank directly, find an associate, friend or acquaintance that is in good standing with the bank to give you a good referral. Bankers tend to deal more favorably those who were referred to them by their best customers.

11. Failure to discuss risk in your application. You must remember one thing: there is no business without risk. If you do not discuss risk, the bankers will assume that you haven't thought about risk. Let's face it - try as we might, we cannot plan for everything, for every contingency, for every turn of events. Bankers would want to know if you have planned for the major risks and how you intend to manage it.

Then, there is also the risk of too much success. The demand for your products or service may exceed well beyond your expectations, and they would want to know how you intend to handle success.

12. Remember that the first loan is usually the hardest to get. Bankers prefer to lend money to borrowers who have borrowed at least once and have paid back at least one loan on time. They are not venture capitalists that make high-risk loans regardless of the profit prospects of your business. Bankers prefer to lend to low-risk, low profit ventures than to high risk businesses or those with no record of accomplishment.