If your small business needs money, you might try asking a bank. But it takes time and work to get a loan.
The bank decides if they’ll give you the money. But if you get ready before asking, it helps you get approved. So, here are ten tips to get your small business ready for a loan.
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A business loan application can take time to process. And banks and other financial institutions favor companies with sound financial planning and management more favorably. Keep up with and check your long-term budgets and cash flow predictions regularly. This way, you can spot the need for money before it becomes critical. Applying for a loan when your business is financially stable gives you more time to think about and get ready for the application process.
Decide on the Type of Financing You Need
Before you ask for a loan, it’s a good idea to know your choices. Do you need a loan for a short time or an overdraft, maybe? Or are you looking for a long-term loan to support a big project? Understanding your options helps you pick the right kind of loan for your needs.
There might also be alternatives to a bank loan that would meet your needs. A business credit card may provide you with sufficient financing. Or have you investigated the possibility of invoice factoring to realize cash from your accounts receivable?
Research the Lender’s Requirements
ResearchingResearch the lender’s minimum requirements is best before applying for a loan. So, contact lenders to find out what types of finance they offer, the terms they will require, and their minimum loan requirements. Find out if the lender requires a collateral or personal guarantee. Ask how many years of audits they need and what other documentation they would like to see..
Create or Update Your Business Plan
Create a detailed business plan with money predictions.
Banks and lenders want to trust that you can pay them back. So, show them proof that you can by giving them information about your business and how you plan to repay the loan.
More than merely saying that a certain level of sales can be achieved will be required, for example. It would help if you backed up your forecasts with historical figures and market research.
Determine How Much You Need
Only borrow the money you really need. If you take too much, you’ll have to pay more back, making it harder. But if you ask for too little, it might make the lender lose trust in your business. So, figure out exactly how much you need before getting a small business loan. It’s all about planning your money smartly. So, prepare budgets and cash flow forecasts and consider all possible eventualities. And build a reasonable contingency amount into your loan application to cover the unexpected. But avoid borrowing more than you need.
Work on Your Business and Personal Credit Scores
Before you ask for a small business loan, the lender will check your credit scores for your business and personal finances. So, take a look at them and try to make them better before applying for the loan. There are ways to improve your credit scores.
For example, pay all bills on time and reduce debt where possible. If your credit is terrible, hire a credit repair company to help.
Applying only a few lines of credit immediately before applying for a loan would also be avoidable.
Boost the Business Before You Apply
It will help you get a business loan if you demonstrate that your business is profitable and growing. It might increase your chances of success if you boost the company’s financial position before applying.
Increase your marketing spend, for example. Or you could offer existing customers some special offers to boost sales.
It will also help if you maintain a healthy bank balance in the run-up to your loan application. Reducing other debt will also help give a lender confidence in your money-management skills and ability to repay the loan
Be Prepared to Offer Collateral or a Personal Guarantee
Lenders will be looking to minimize their risk. One way they can do that is to have the loan backed up with collateral or a personal guarantee.
So, first, consider what you could provide as collateral against the loan, such as business or personal assets. And decide in advance if you will be willing to give a personal guarantee.
Think carefully about using personal assets as collateral or providing a personal guarantee. Be sure that losing your home or being left with a significant debt to repay is a risk you are willing to take.
Don’t Borrow What You Can’t Afford
As we talked about earlier, there are things you can do to make it more likely to get a small business loan. But, only borrow if you’re really sure you can pay it back.
So, when you’re guessing how much money you’ll have, be real about it. And, very importantly, always tell the truth when asking for a loan. If you get a loan that’s too hard to pay back, your business might have to stop. And, if you promised to pay back the loan or used your things as a promise, you could lose even more.
Seek Advice and Help If Needed
Running a small business is a big responsibility, and if you need help with planning or handling your money, don’t be afraid to ask for assistance. A bookkeeper can help organize your accounts and work on budgets and financial predictions.
An accountant can give you advice on what you need for a loan application and what kind of financing is best for your business. Remember, lenders want to trust your numbers and your business. So, having accurate accounts and predictions is crucial to increase your chances of getting a business loan.
Final Thoughts on Preparing for a Small Business Loan Application
Getting ready to ask for a small loan makes it easier to get one. First, think about how you can get money. If you need help, ask a money expert like a bookkeeper or accountant. If your numbers make sense and you have the right papers to show your situation, you’ll be in a good spot when you ask for a loan. Take your time to think about exactly how much money you need and why before asking for a loan. Make sure the money experts understand what you want to do with your business. Keep your money records up-to-date so they really show how your business is doing. Look at different places besides banks for loans, like online lenders or government programs, to find what’s best for your business. Always be honest about any money problems you’ve had before, because being truthful helps the people giving you the loan trust you more.