Here are 10 strategies for getting a small business loan
Managing the process of obtaining a small business loan to grow your business can be a difficult one to handle, particularly if the entire process is new and appears somewhat formidable.
It can be difficult to ensure you have everything in order and having everything you need to successfully achieve the loan you’re lookign for.
Here are some strategies you should consider to put yourself in the best position to achieve success from people who know about loans for your small business.
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.
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 and you need to be aware of what is required.
A secured loan will require collateral, which may involve property or equipment and there is a risk factor involved because they can be seized in the event that you fail to repay the loan. However the upside is that providing collateral, let alone a guarantee, can increase the amount you borrow and can also reduce the interest rate on the loan.
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.
Make sure you are fully aware of your cash flow in particular so you know how much you can afford in terms of a small business loan and what the monthly (or even daily) repayments will be.
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.
You can fall into different categories, depending upon the type of loan you want. For instance, there are SBA loans, which will frequently have high limits – as much as $5 million or more and many lenders will also provide specific loan deals depending upon your requirements (vehicle or equipment purchase, for instance).
Or there can be financing for startups, such as credit card or personal loan deals that require good cash flow statements.
A line of credit can be something to permit the handling of day-to-day costs as they arise and is a more flexible arrangement that lets you cover unexpected costs, payroll costs and other factors.
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. In any event, you need to be clear about what you are looking for and
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.
You need to have the necessary documents ready, including such things as –
Business and personal tax returns and bank statements.
legal documents (such as company documents, lease agreements, franchise agreements etc)
and of course the business plan – put some effort into that.
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.
Remember that you will often face a requirement to have a minimum revenue level, which may range anywhere from $50,000 to $250,000 or more. Be ready to provide that information and to have the revenue statements and other information required.
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.
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.