Obtaining a small business loan can be a daunting task because of the stringent rules set by banks when giving loans. These loans are vital as they help small-startups to make ground and keep operating. The loans are termed as business loans and are necessary as they cover the daily expenses of a business: these expenses may include inventory and payroll. Small-business loans are given in different forms. One of the commonly used ways is through debt financing. The debts are offered by financial institutions like banks, credit unions, financial Sacco, and many other like institutions. Often, banks prefer to give their loans to businesses that are ongoing rather than those that are just beginning. There is always a higher chance of the former to pay back than the latter. In this article, we shall discuss the steps that you ought to follow as you make a loan application for your small business. Take a look!
If asked if you know how you will spend the business loan you are applying for, you are likely to give “yes” as an answer. While it may seem obvious, it is never that obvious. For newbies, the money may be used as capital and will make initial purchases. However, for ongoing businesses, you may fail to know how you will spend the loan amount that you need. Therefore, before making your application, understand why you need the cash. Failure to do so may lead to misplaced priorities on your spending or extravagance. Whether your firm is an existing one or just a start-up, take time, and articulate your expected expenditure.
This point is necessary, especially for start-up businesses. Being a newbie, you will need advice from experts and experienced professionals. You will be lucky if you have a SCORE chapter near you because here, you will not pay to e advised. If you lack a SCORE chapter in your local area, you will still get the business advice and counseling online. Apart from SCORE, you might be having a section in SBDC. SBDC, Small Business Development Center, is mainly found in colleges or universities. These centers are part of the SBA – Small Business Administration. The centers exist purposely for helping entrepreneurs start their businesses. They do so by supporting the owners to apply for the loans.
Start-up businesses and continuing business owners that have had their businesses existing for only three years or less need to evaluate their credit score and history before making a loan application. When making their applications, their credit history undergoes scrutiny as part of the application process. Additionally, you will have the credit history of your business evaluated in the application process. For this reason, be keen to go through your credit history before the application.
If possible, request a credit report from the credit agencies that you are registered. Go through these reports, and in case you notice errors, let the agency fix the error. You can file for a dispute statement if the error cannot be fixed. Credit history affects your credit score. Consequently, it is easy for your loan to be approved if you have a score of 700 and above.
There are many places where you can borrow your small-business loan. However, not all will approve your request. You can consider regional commercial banks that are aiming at helping start-up businesses. Alternatively, you can think of non-bank financial entities like credit unions. You may be lucky if you have membership in a credit Sacco. You can approach the loan officials of the Sacco and discuss with them your need. If your Sacco supports the idea, this is an excellent place to make your application. Think “wild” and consider areas where microfinance loans are offered for start-up businesses. Try all your chances.
Having a quality business plan is a very critical step. You might be having an excellent business idea. However, if you do not have a good business plan, the business idea will take you nowhere. Prepare your business plan well and make it well-understandable. Failure to do so will communicate that you are not sure why you need the loan amount. A shoddy business plan will put you out of the loan equation and deny you the opportunity to set the business. When making the application, the business plan is sent as a separate document from the loan application form.
Know how to write a business plan. With all the parts it has, ensures that every piece is well-incorporated without neglecting any. A good strategy is the one that has several financial statements and income statements for the business attached. Also, add a collateral comment in the business plan and the value of the assets which you want to use for securing the business loan. Do not forget to include a market analysis of your business as it will help show your experience in the business.
Your application has to be compelling and convincing for the loan officials at the financial entity to accept your loan request. Therefore, be sure you take some quality time to prepare an organized presentation of the business plan and loan application for the officers. Let every segment in the business plan be well-ordered and organized. To make your performance convincing, you can have a summarized but organized demonstration that will prove that your business is worth receiving the loan. Combine all the necessary packages that the loan officials will need to check before accepting your application. Have a well-written narrative and visual aids in your presentation and include all the essential information required.
After following all these steps, you are good to go. Wait and see your application be a success.