If you own a small business, there may come a time when you need a loan, or think you do. But applying for a loan can be intimidating, to say the least. Here are some things you can do to maximize your chances of getting that loan:
Be clear about why you want the loan.
Common reasons for applying for a business loan include start-up costs, equipment or inventory purchases, a real estate lease, expansion, and working capital. Your attractiveness as a borrower can vary depending on the reason you are seeking the loan. For example, it is generally easier to get a loan to expand an existing business than it is to get a loan to start up a new business.
Have a well-written business plan.
Most lenders require a written business plan as part of a business loan application. All prospective lenders want to know exactly what you plan to do with the loan if you get it. A well-executed business plan that lays out specifically how the money will be spent can help convince lenders that their money will be invested well and paid back on schedule.
Be sure to include information regarding the cost of your business’s various operations, as well as relevant statements showing your business’s financial health, such as accounting records, profit and loss statements, your business license, proof of insurance, and tax returns. You should also include cash-flow projections that show how you will pay back the loan.
Clean up your personal credit history.
In many cases, a small business owner’s personal credit history is a crucial part of a prospective lender’s risk assessment of the loan application. Therefore, you should check your credit report for errors. If you find any errors, you can dispute them with the reporting agency. You can also check your credit report and score for free via Quizzle.
Are you willing to put up collateral? What about personal collateral?
Collateral helps to relieve lenders of the risk of making a loan. If the borrower defaults on the loan, the lender can seize the collateral and liquidate it to offset the debt. However, a failing business is generally harder to liquidate than personal assets like a home or vehicle. Therefore, many lenders require that small business owners put up personal collateral to secure a business loan.
If you plan to offer a specific item as collateral, it can be helpful to get an appraisal to help establish its value in support of your loan application.
Remember that all lenders are not created equal.
Lenders have different loan application requirements and different methods of risk-assessment. Therefore, although one lender may reject your loan application, another lender may grant it. A good place to start when looking for a loan for your small business is the United States Small Business Adminstration (“SBA”). The SBA has several different programs that help to provide funding for small businesses, including a guaranteed loan program. Through this program, loans made to small businesses by SBA partners are guaranteed in part by the SBA and meet SBA guidelines.
Think ahead and apply for a line of credit when business is booming.
Bob Hope said, “A bank is a place that will lend you money if you can prove that you don’t need it.” And not surprisingly, it is easier to qualify for a loan when your business is thriving and you don’t really need a loan. Such circumstances are a great time to apply for a line of credit that you can tap into if there comes a time when you do need to borrow money.
Finally, don’t rush your loan application. Take the time to complete it carefully and accurately. First impressions matter, and a professional-looking application to prospective lenders makes a good one.