Borrowing money has always been infamously difficult for small businesses; however, there are steps and ways to improve the appeal of your lending application including checking your credit history, utilizing a small business loan calculator, understanding the amount of money you want, and choosing your provider.
Network before applying for a loan. It’s important to build a relationship with the lending institution before your business actually needs a loan. Get to know the people behind the lending institution before you ask for anything. Consumers do business with who they know, trust, and like. Lenders are the same way.
Decide specifically how the loan will be used. There are good and bad reasons for needing a business loan. A good reason will be for system upgrades to improve workplace processes. Bad reasons include financing an ongoing business loss, office build outs, or obtaining unnecessary business assets.
Evaluate how much is required. Most small businesses don’t request enough; underestimating the amount of money can lead to issues with a lack of working capital looming up like an iceberg next to the Titanic. Many are confused and become reluctant because they don’t know how much they’re capable of borrowing. You can easily use an online small business loan calculator to assess exactly how much you can borrow, as well as total repayment from one to six months.
Also, you need to create a well thought out budget that’s supported by financial projections. It must be reasonable and indicate that proper research has been utilized.
Check your credit score. Most lenders look at personal credit scores as a way to assess the reliability of the principals who will borrow capital. It’s vital to know what business loan providers look for and how the scores compare to those expectations. Not all business loan providers will look at your past, some will just see how your business is currently performing and decide from there. But you should know ahead of time what your credit score looks like, and take steps to rehabilitate it when possible.
Find a lender. Research which type of lender is the right fit for your business loan needs. Some types include:
- Commercial banks: Traditionally best for loans that fall into the strict parameters of traditional financing.
- Non-bank lenders. These types of lenders are increasing in numbers, specializing in providing a loan to small businesses. Help can be located using sites such as Kikka.
- Region-specific lenders. Local community banks as well as other lenders that have an interest in the local economic development in a certain industry or geographic area.
- Micro and alternative lenders. Crowdfunding sites like IndieGoGo and Kickstarter can be helpful for capital needs with the bonus of marketing features. Personal loans can also be sourced from peer to peer sites like The Lending Club and Prosper.
Prepare your documentation. Once you know which lender you want to use and why you need the capital, start building a dossier of relevant documentation as evidence to support your application. Include banking statements, invoices, forward revenue projections, product designs, business insurance properties, etc.
Wait patiently. Once you have contacted and submitted your application to your desired lending institution, expect an answer within two to four weeks (sometimes faster). It’s also normal for the lending institution to require additional documentation. So don’t get impatient.
That’s it! You may start the procedure by using a small business loan calculator to check repayments precisely, and then contact your chosen business loan provider. And remember not to get discouraged. If one lender turns you down, keep trying different financial institutions until you find the one that is will to take a chance on your venture.