Thinking about starting your own business? Most small, independent businesses start out with an idea, a business plan and a small business loan. Before applying for a loan there are a few basics you should know, depending on what the bank or institution you’re approaching is looking for and what type of enterprise you’re planning on opening. Doing your homework before applying can dertermine whether the bank either grants or rejects your loan. As a small business owner, one of the most difficult tasks you will be faced with is finding the money to operate your business. Whether you need capital to fund your start-up or for needed investment to upgrade infrastructure, you will need to source the money. For many business owners, a small business loan is an option. Learn what you need to know to clinch the loan deal.
Applying for a Small Business Loan
Banks and other lending institutions cite risk as their main reason for turning down most small business loan requests.
But that doesn’t mean that you can’t get approved. You can still get a loan for your business with proper preparation.
The main considerations for attaining a small business loan are your personal credit history, business plan, experience, education, and feasibility of the business you are starting or expanding. With good personal credit history, the most important task is preparing a business plan. Your business plan needs to show the lender that providing you with a small business loan is a low-risk proposition. Your business plan must answer the questions a lending institution would ask, so consider the following questions.
1. How Much Money Do You Need?
If you are starting a business, the answer to this basic question should be included at least in the start-up capital estimate. If yours is an existing business, carefully assess what money you need and why you need it. Accuracy is important, so request enough money to invest wisely.
2. What Are You Going to Do with the Money?
You will have to provide, in detail, the designated use of every dollar requested. A small business loan is often needed for expenses like operations (new employees, marketing, etc.), assets (equipment, real estate, etc.), or to consolidate and pay off business debts.
3. When and How Will You Repay the Loan?
Explain in detail how the small business loan will serve as a stepping-stone for your business. You will need to convince the lender (with your financial statements and cash flow projections) that you are able to repay the loan through the expected long-term profitability of your business.
4. What Will You Do If You Don’t Get the Loan?
As a small business owner, you will need a certain degree of fortitude. Be confident and proud of your venture. Let lenders know you are in control and know what’s best for you and your business. You want to portray a determined personality by illustrating your confidence that you will be approved, even if you have to approach to another lender to secure the money you need to get your business moving.
Understand that lending institutions need to make loans. But if you don’t get one, don’t get discouraged. Ask the lender why you didn’t get the small business loan. Learn from the answer, move on, and try other again.