A major part of starting a business endeavor is securing the funds to get your idea off the ground. The problem is that many entrepreneurs do not have a spare few thousand bucks sitting in their bank account. If this sounds familiar, there may be more options than you realize. One of the best things that you can do is learn more about the business loan application process and follow tips such as these to secure future funding.
1. Improve Your Credit
What does your credit currently look like? One of the wisest business loan tips for any new business owner is to improve your credit. When you apply for funding, most lending institutions will look at your past financial history before they agree to give you money. If you are unsure where to start, consider working with an accountant or another financial advisor who can help you improve your credit situation if it is less-than-stellar.
2. Ask Questions
Before submitting an application for any kind of business funding, you should make sure you thoroughly understand the terms of the funds you are trying to receive. This is one instance when asking questions is especially useful. If there is anything you do not understand about a loan you are considering, do not hesitate to ask the lender about it.
3. Figure Out Your “Why”
What is the purpose of the funding that you are seeking? It is also significantly helpful to know your “why” before applying for an SBA microloan or any other type of business funding. Being able to explain this to others is even more important, especially to the institutions that you are asking for funds from. For example, it is common for entrepreneurs to request funding to:
- Buy new equipment
- Help establish a business
- Pay for day-to-day operations
- Provide help for an emergency situation
Keep in mind, your reasons may differ.
4. Check Your Eligibility
Although your credit score can have a big impact on funding decisions, it is not the only factor that goes into determining your eligibility. As such, you should check your eligibility even if you have good credit. Depending on the type of loan you are seeing, you may need to also provide collateral and/or personal guarantee, be in business for a certain amount of time and be able to provide proof of ongoing annual revenue for the previous three to five years.
5. Compare Lending Options
How many business loans have you considered? When you are looking for business loans, think of them like cars: Most people do not buy the first vehicle that they look at. Similarly, you do not need to pick the first business loan you learn about. Instead, take time to compare your lending options like government contract factoring. Government loans through SBA are common, but there are many other choices such as online lenders, traditional banks and nonprofit organizations. If you really can’t work out what the best option for you is going to be, it may be worth talking to someone like these Corporate Finance Brokers who will be able to guide you and help you make that all-important decision.
6. Gather Required Documents
Before submitting your business loan application, you need to have all the necessary documents. In general, most lenders ask for:
- Personal and business tax returns
- Business licenses
- Articles of incorporation
- Personal and business bank statements
- Profit and loss statements
- Financial statements
- Business plan
- Building lease
You may not have everything on this list, but try to gather everything that you do have. Some documents such as building leases do not apply to all business types but expect to need most of these. For any documentation that is missing, be prepared to explain why you do not have it.
7. Create a Solid Business Plan
When it comes to the top business loan problems that entrepreneurs encounter with denials, lacking a solid plan is one of them. Do not let yourself fall into this category! Instead, create one from the very beginning of your startup. Not only will a thorough business plan help you secure funding, but it can also act as a roadmap that guides you along your entrepreneurial journey.
Securing a business loan can be challenging. Use these tips to help make the process smoother.