Every business starts with a dream — something you’ve always wanted to do or create. As you invest time and money into your project, you may find you need financing to grow beyond marginal profits at six months to the booming profit-machine you dreamed up. Applying for a business loan may be the answer. With a small business loan, you can get the money you need to purchase your own space, hire new employees, manage inventory costs, get new equipment and cover marketing costs.
If this is your first time applying for a business loan, it may be difficult for you to obtain financing right away. As a new borrower you’re more of a risk to lenders, but there are several tips that can help you prepare and present yourself as a prime candidate. Keep in mind, each lender is different and different rules and requirements may apply.
- Outline the core elements of your business: Most lenders will want to know a little bit about you before loaning you money. A short summary should include your products or services, employees, competitors, current financials and plans for your future growth. You may need to provide records of your personal finances as well.
- Know what type of loan you need: Knowing the type of business loan and loan amount you need shows lenders you have done your research. Think about why you need the loan. Are you trying to grow working capital, purchase a new space or hire new employees? Using a business loan calculator can help you decide how large a loan you need and what type of loan suits your needs.
- Develop a relationship with your banker: Look for a lender who has worked with companies your size in your industry as they will have a better understanding of what you need. Communicate your goals and financial plans clearly and patiently. You may be emotionally connected to this project, but a lender is looking at it strictly from a risk-reward relationship. Helping them see your vision may help them be more invested in your project.
- Come prepared with answers: Your lender won’t be afraid to ask the tough questions, and you should be prepared to answer them. Know what you’re willing to offer as collateral for the business loan, what your risks are and how you plan to counteract them. Other questions to be prepared for are:
- How do you plan to repay the loan?
- How do you plan to meet your projections?
- Do you have previous business experience and can you provide references?
- Can you support your projections with facts?
5. Maintain your credit and borrowing credibility: Before you apply for a small business loan, obtain a copy of your credit report and do whatever you can to improve your score. Show the lender you have a strong borrowing history with evidence of paying down student loans or car loans and making regular mortgage payments. It’s also important to show you have the resources to support the loan aside from the earnings of this business. Whether it’s in the form of savings, a spouse’s income or a co-signer, this will make you less of a risk.
Be confident and prepared when applying for a small business loan
Lenders want to see that you have a plan and a back-up plan. Go into your meeting with confidence in your strategies, and be open with the lender about any flaws or potential areas of risk. It’s also important not to go on the defensive. Accept any criticism they have and ask them how they suggest you improve in order to obtain the loan.