When Robert Smith started Carlton Promotions, he started small. Faith in his plan and constant vigilance in solving problems are the practices that he attributes to his success. These are also the principles that helped him successfully apply for a line of credit.

"You have to take a look at where you want to be and what you want to do, but not jump into things too quickly," he said.

Smith's company, Carlton Promotions, supplies unions and other organizations with Canadian-made t-shirts, buttons, picket signs, and other promotional paraphernalia. The three-person business started without outside financing and applied for credit after it had a business track record.

Demonstrate security, not need
The fact that Carlton Promotions applied for credit when business was strong was one of the key factors in its success according to Howard Bogach, CEO of Toronto's Metro Credit Union, which was the institution that granted Carlton Promotions its line of credit.

Bogach says clients who walk in and say "I need more money to operate my business" aren't providing the lender with a reason to invest in their company. Instead they must demonstrate not only how the money will help the business, but also how it will help them re-pay the loan.

"As a lender you are always wondering ‘Will I be re-paid? How will I be re-paid? When will I be re-paid?'" said Bogach. "You have to show the lender why it's a good idea to put money into your business."

Good records essential to success
Another business strength that Smith was able to demonstrate was good financial records. He says the process was easy when the credit officer came to investigate because he has a staff member who keeps his books in order.

"They saw that in the first year, we were without any outside financing and held our own," he said. "They looked at our sales and our current orders. We put them in touch with our accountant and, basically, just showed them what they wanted to see."

Key documents that credit officers look for include:

• Balance sheets
• Income statements
• Financial projections
• A list of your assets
• A plan that shows how you will secure the loan
• A business plan

New ventures hardest to fund
Carlton Promotions also had a track record by the time Smith applied for credit. This, says Bogach, is the critical difference for traditional lenders. Entrepreneurs who have no track record and are looking to fund a new venture will find it much harder to secure funding.

"What you're asked to lend against is somebody's great idea," said Bogach. "The lesson we've learned is that no matter how good the business plan, something will go wrong."

To overcome this problem, Bogach's credit union has a special micro-loan program, a concept that's becoming more common among community-oriented lenders. Bogach's program offers loans of up to $20,000. Successful candidates generally must be part of a small business incubator or similar program to ensure they have support to solve problems.

Business owners can also gain support by having an honest relationship with their credit officer, says Smith.

"It's good to have a circle of business friends," he says. "They can be your bank manager, your accountant, your doctor and especially your business associates. You need them for support."