Originally published in The Frederick News Post

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More than 28 million small businesses operate in the United States, according to a September article in Forbes. The businesses may be referred to as “small,” but their collective impact is significant.

Small businesses have been responsible for creating more than 65 percent of the net new jobs in the U.S. since 1995. More than 50 percent of the workforce, or 120 million people, are employed by small businesses.

From the business owner’s perspective, however, running a small business can be challenging. More than half of all new businesses fail within the first five years. Many of those businesses cite a lack of capital as one of the main reasons.

Chances are you’ll need access to capital to achieve your goals. Your business may struggle if workspace is inadequate, if you don’t have the resources to bid on and win larger jobs, or if you haven’t planned for the increase in operating costs associated with growth. All those issues can be managed when you have access to working capital.

A lot has changed in recent years with borrowing regulations and with the economy in general. It’s important to be aware of how those changes can impact your business the next time you apply for a loan.

Credit is a major factor. No matter what type of loan you apply for, the personal credit score of all named business owners is important. The higher the credit score, the higher the likelihood of closing the deal.

What factors determine how high or low your credit score is? Your personal habits play a large part in your credit score. Handling your creditors well, routinely paying bills on time and typically using a small percentage of available credit all help improve your credit score.

A bank will review your capacity for repaying a loan. Often this is determined by a global cash flow, which is a blend of personal cash flow and the business’ income and cash flow.

Banks will also want know your capital position and review your collateral. What are the assets of the business and what value do they have? Everything is considered, including machinery, equipment, inventory and accounts receivable. What can the business and the business owners pledge in order to obtain the loan? The collateral needs to make sense relative to the loan amount.

Another option to consider is a Small Business Administration loan. The SBA is a government agency, not a lending entity, which partners with banks and private lenders to guarantee all or a portion of a business loan. The SBA establishes the guidelines, and the lenders administer the loans. These often have more leniency than conventional loans and a business can obtain a higher loan amount or cover collateral shortfalls.

All loans have specific documentation requirements. Expect to be asked to provide two years of personal tax returns, two years of business tax returns, and a personal financial statement for all owners with more than 10 percent ownership. In addition, sales contracts, an accounts receivable aging schedule, and a business plan are typically required, depending on the loan’s purpose and size.

Most importantly, the loan should be tailored to meet your specific business needs. Industry, cash flow and sales cycle are just a few factors that go into determining the type of loan that is best for you. Take the time to find and talk to a knowledgeable lender. This is a crucial step in this new business environment.

Kendra Peacher is a business banking relationship manager at PNC. She is a former business owner and has been a volunteer in another SCORE chapter.

SCORE Frederick provides free and confidential business advice and mentoring to start-up businesses and to established small businesses. SCORE Frederick also offers workshops for both start-ups and established businesses.