If you are a small business owner chances are good that you already know the vital importance of small business loans. This form of funding can often be the lifeblood of a startup company; it may even take this type of loan to raise enough capital for a business venture in the first place.

Many small business owners believe the misconception that they can initially skate by on government grants or contributions from their local community agencies. You’re more likely to get money from friends and family, which isn’t saying much. Your primary source for small business loans will be the bank. You need to know how to approach banks and similar lending institutions with a good plan of action, since their number one excuse for refusal is risk factor.

Good preparation is key. The bank will be looking at not only the likelihood of success for your company but also a multitude of other factors including your education level, your experience in the field, the details and presentation of your business plan, and of course your personal credit history. If you’re not responsible enough to handle a credit card you’re not ready for your own company.

Out of this list, small business loans are most heavily contingent upon your business plan. Your plan should be well-organized, thought out, and attractively presented to show that you are a professional and that you’re serious about your business. The bank or lending institution typically asks four basic questions, so design your business plan to specifically address these issues:

What amount are you asking for? If you’ve done your homework beforehand, you’ll know that this sum represents at least the start-up capital estimate. Don’t lowball yourself thinking that this will make your request more attractive. Make sure that whatever amount you ask for, the money from your small business loan will be adequate for your needs. If it isn’t, and you lose everything because you underestimated the funds required, your credit will be ruined, marking you as a bad investment.

What will you do with the loan? Typically, loans of this type are for paying off business debts, acquiring assets such as real estate, office space or equipment, or covering the cost of operations which can include advertising or hiring. You’ll have to show the planned use of every single dollar that you want from the bank.

When will you repay your loan? Keep in mind that a small business loan is meant to be a temporary stepping stone. Prove, in detail, that your company has potential for long-term profit and that the bank is making a good investment by picking you—after all, they’re bankers. Appeal to their greed. Typically you’ll need cash flow projections and financial statements for this purpose.

What is your backup plan? This last one may seem like a trick question, but it tests your resourcefulness. Show that you have more than one idea and above all, be confident—with any luck, you’ll get the loan you need. And if you don’t get that small business loan this time around, ask the lender why and fix the mistake. You’ll get there eventually!

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