Four Combined Tips to Secure a Loan for your Business
Contrary to popular belief, traditional banks and other financial lenders want to do business with your company. Yet, receiving a business loan and actually getting one approved are, unfortunately, two different mindsets. So, as a small business, (or any type of business for that matter) what is required to get the funding your business needs?
There are many steps involved for getting a business loan. Nonetheless, being organized with a lot of important information and taking the necessary steps is at the top of the list. While there are differences between a short-term business loan, commercial property loan, commercial construction loan or even a small business loan, your company needs to qualify in many aspects for approval in order to qualify. To help, here is a list of important steps to take even before you walk through the door of your lender’s office.
1. Be Clear on the Amount Your Business Requires
This may be common sense, but you need to determine how much your business actually needs and what your business can qualify for. For instance, if you’re applying for a commercial construction loan, set your sights high – but be realistic with all the facts – as you will need costs for development, materials, labor, etc. (and yes, it all adds up).
2. Create a Sound and Organized Business Plan
In an interesting article from The Balance Small Business, 7 Steps to Take When Getting a Business Loan from a Bank, one of the important first steps are creating a proper and sound business plan. It not only establishes and explains the basis of your company, but outlines your short and long-term goals, and how your business can achieve those pre-determined goals. It should include financial data, marketing initiatives, the proper management experience, production costs, business forecasts, and the list goes on. In the end however, a great business plan will have the lender agreeing with your concept and that it will succeed based on the information you have presented.
3. Access your Credit Score
This is sink or swim time. The same article states that banks absolutely need to check if you are even qualified to get a loan in the first place. Banks or lenders do this by checking your credit score. Or to stay one step ahead, access your credit score yourself. For instance, if your business has a credit score of 700 or above, your business is in great shape. On the other hand, if it’s below 680, approval may be a little challenging. If this is the case, a revenue based loan with an investor(s) may be an alternative. Nonetheless, bad credit or a low credit score can be fixed over time. If it is lower, make efforts to raise it before you apply for a loan.
4. Find a Lender
Finding a lender for the type of business loan you require takes some research and diligence. Believe it or not, there is a difference from one bank to the other. For instance, according to www.business.org, if you realize your business needs invoice financing, simply begin by shopping for lenders who specialize more with that type of loan. But if you require a small business loan or a short term business loan, look for lenders with minimum or maximum loan amounts, along with fees, terms and annual percentage rates (APRs). This is where the research comes in. You may find some banks have a high APR but have a better term that aligns more with your business. Another bank will offer a better APR but more fees are required up front. Again, do the research to find a lender that is best suited for your business’ needs.
There are many stipulations in applying for a business loan and it’s important to be prepared. With some careful planning, analyzing, and proper forecasting, chances of getting approved are far greater and it’s a big step in the right direction for business success.