6 Tips to help you get a Business Loan
Many people have great business plans but worry about getting the funding to get started. While credit, in general, has tightened since the great recession there are still many loans that are available for small business owners. It takes a bit of research sometimes, but as long as you take the time to look into your options and prepare your information you should be able to find a fit for you. The process can take a little while, so it’s better to get started sooner rather than later. Below are some steps for expanding or starting your business and getting help to finance it.
1. Explore your options
It is a good idea to explore if you can get a loan before you go through all the hoops of applying for one. The Small Business Development Centers run by the SBA offer free advice to business owners on how to present their plans and help them assess if they are in an excellent position to get a loan. Try also talking with your financial advisor and accountant if you have one to go over recommendations for expanding or opening your business and looking at what type of business loan you need.
2. Create a business plan and gather financial documents
If you have run a business in the past or your company has opened already, then that can be helpful information that assists you with getting a loan. If you’ve never run a business or yours hasn’t opened yet it can be a bit more challenging. If your company has opened, then you should assemble documents on your cash flow to demonstrate how your business is earning money and where it is coming and going out. Make sure you prepare a well thought out business plan that reflects your understanding of the process. This should be a concise document that shows your financial projections and a detailed strategy for your businesses success. The key is you need strong documentation, without detailed information, your answer on your loan application will be a no.
3. Look into a Community Bank for your loan
One option to consider is to look into Community Banks for a business loan. The loan officers in community banks have more decision-making power. Large banks are tied into algorithms for their decisions and have less flexibility. Search for a bank that promotes their desire to work with small business customers. Consider if their website and their marketing material target small business customers. If a significant portion of their customer base is a small business, then the bank is an excellent choice to explore applying for a loan.
4. Make sure you have your finances in good standing
Banks will look at a poor personal credit history as a problem when you are looking into a business loan. They are taking a chance on you, so they want to make sure you are someone that has a robust financial foundation personally. The first step is to get a copy of your credit report. Review your report and dispute any negative information that is incorrect. Work on paying off any outstanding loans or credit cards. If you don’t have enough credit history, you should get a credit card and use it monthly and then pay the bill every month. You can work on improving your credit score by using less of your approved credit, paying your bills on time and not having any inquiries on your credit for a few months.
5. Look into a line of credit
When you get a business loan, you get the whole amount at once. The loan is used for your stated goal of expanding or opening your business. Once you receive the loan, you will pay it back over a period from your profits of your business. If you have a line of credit, you can use it in the way you might use a credit card, when you need the loan you use it. If you need materials but will have the cash after you finish the job, you can tap into your line of credit. Then you can pay back what you borrowed when the money comes in. A range of credit is better for the day to day running of your business.
6. Don’t wait until the last minute
If you wait until you are short on cash, you are going to have more difficult time getting money from the bank for a loan. The bank has to feel your business is going to succeed to lend to you. If you are at risk for going out of business, they won’t be able to take that gamble. If you can project your upcoming cash crunch’s that are part of your business flow and explain that to the bank, then they will be more likely to give you credit. Many businesses which are profitable fail because of cash flow issues. Don’t let that happen to you, plan ahead!