Getting a small business loan can be simple – if you follow these key steps
A business loan is a massive help in starting and developing any small business, but actually working through the process of obtaining one can be difficult. When combined with tighter lending standards, the whole process can be intimidating and difficult. However, there are some key strategies that can be used to work through the process in steps that should make you able to get loans for your small business easily.
It is certainly best if you have been in business for a period of at least a year before applying for a small business loan, but that is not to disqualify earlier applications. Whatever the timeframe for your business here are 10 key steps to consider:
- Prepare a Quantifiable Payback Strategy
Whenever you go to a loan company, they expect you to come up with a payback strategy of your own. This is not only to give you a comfortable payment option, but it also serves as a way of evaluating your preparedness for paying the money back and your overall business acumen.
Carefully consider your business’s financials — especially cash flow — and evaluate how much you can afford to apply toward loan repayments each month. Some online lenders require daily repayments, but you need to know exactly what they are and how they work for your business.
- Make Sure You can Provide Personal Guarantee
Being a small business means that you may not always have sufficient assets in your business to guarantee your loan. In that case, you may be required to put something from your assets up as a guarantee against the loan. The lender will never give you a loan without this guarantee.
- Be Completely Honest About your Finances
Always tell the truth to the loan company regarding your finances, regardless of how good or bad they are. Lying about your finances to secure a loan can turn out to be a huge mistake if the loan company finds out (and they do in most cases). It will affect your credit rating severely. Remember that you can get your credit report for free from each of the three major credit bureaus: Equifax, Experian and TransUnion. You can also get your credit score for free from several credit card issuers and personal finance websites also using web apps and other tools.
- Come up with a Realistic Loan Amount
When figuring out the loan amount you need to get from the lending company, you must figure out a realistic number. Thinking that you can get whatever amount you request is completely wrong, and you can end up getting a rejection as well.
And when requesting your loan make sure that you also have the appropriate documentation with you or readily at hand, including –
Depending on the lender, you’ll need to submit a combination of the following:
- Business and personal tax returns.
- Business and personal bank statements.
- Business financial statements.
- Business legal documents (e.g., articles of incorporation, commercial lease, franchise agreement).
- Business plan.
- Be Prepared to Spend Your Own Money
Getting the full amount that you need may not be possible and there is a chance that you will be given the option to go for a smaller loan. We highly recommend that you take it and complete your requirement using your personal funds.
- Always Keep your Business Plan Handy
The lender will always ask you to share your business plan so they can evaluate if your demands are based on something real and quantifiable. Therefore, having a properly prepared business plan is extremely important to show the loan company how you intend to spend the money.
It will also demonstrate your seriousness about business loans and exactly what you are wanting the money for: to start up, to grow, to
- Stay Informed About Financial Concepts
To make sure you do not end up agreeing to bad loan terms, you should learn all the basic concepts revolving around loans. This will help you review the offers you get from loan companies in a more informed manner.
- Do not Expect Help Related to your Business
The only thing you will get from the loan provider is the money you need for your business. Do not expect them to give you any input regarding making your business successful. In fact, if you show them incompetence, they might not even give you the loan.
- Try Finding Grants That You May be Eligible For
Many businesses are also eligible for grants and that saves them from getting loans. Always check if you have that eligibility as well and get the grant if you can.
- Go Through the Terms and Conditions of the Loan Thoroughly
Read through the terms and conditions shared by the lender for the loan and make sure you do not agree to anything that could come to bite you later. If you need legal assistance then get it and certainly take the time to closely consider the small print and the conditions relating to your borrowing.
With the strategies shared here, you can have a solid chance of grabbing a good loan, and that too with reasonable terms and conditions. Do let us know what kind of loan you went for and how this guide helped you out.