Money is a must for any business, so whether you are launching a business or running one that exists, it’s essential to secure financing. Many entrepreneurs are intimidated by the task and aren’t sure where to begin. Getting a loan is often a necessity to start a business, but also acts as a major hurdle largely due to strict lending standards.
If you’re like many other business owners out there and need help getting a business loan, take a moment to look at these 4 steps that can help streamline the process.
Identify the reasons you need the loan
Lenders will ask you why you need the loan, and the answer(s) could be one of many. Do you need a loan to start your business? Is the reason to manage day-to day business expenses? Is it to grow your business? Do you need cash to act as a safety net in the event of an emergency? Make sure you identify why you need the loan so you can explain the reasons to your loan officer.
Recognize which type of loan is best for your business
The reason you need the loan will dictate the type of business loan you need. If you need to get your business off the ground, keep in mind that it can be tough to secure a loan within your business’s first year. The reason why is that lenders need to know you have the cash coming in to repay the loan, so startups are often not eligible to receive financing. Instead, entrepreneurs have to fund a business through the use of credit cards, borrowing money from friends or family, or obtain a microloan from a lender.
If you need money to manage everyday expenses, you’ll need a working capital loan that will provide you money to cover expenses such as equipment or inventory. A business line of credit gives you the ability to borrow and repay money as needed, comparable to a credit card.
If you need some cash in the event of an emergency, a line of credit or term loan with the best rate you can get is ideal.
Another option is to look into is online lending platforms. The lending platform by LendGenius.com has had 20,000 loan applications submitted in the past 90 days as a result of their recent launch in a SmallBizTechnology.com article.
Figure out how to simplify the process
There are a lot of mistakes budding entrepreneurs need to avoid, and one of those is not being prepared. It’s always smart to set yourself up for success by being organized, truthful, and thorough.
Choose your lending institution with care. Keep in mind that bigger banks are likely to shy away from smaller loans as they take the same amount of servicing and underwriting but earn less profit than bigger loans. Large banks do still provide small loans; they’re just not as common. It is also a good idea to approach lenders or banks you have worked with in the past.
Make sure to explore all of your options. When meeting in person, always come prepared; bring everything the loan officer asks. Loan applications are sometimes denied or face avoidable hurdles because of unfinished applications and lack of required paperwork.
Take the time to educate yourself on business loans so you understand them and are able to discuss the details of the loan when the time arrives. Consider looking into ways to make the most of your limited startup budget, too.
Know what information is required
To go with the point above, you need to figure out what you need and gather those documents to submit with your application. Different lenders might require additional documents, but in general, applicants will need documentation that displays both business and personal credit history. Make sure to gather all business and personal financial statements for both existing and startup businesses. A strong business plan with details and cash flow projections for at least one year are helpful to have, too.
Startups are a tough venture, partially due to how difficult it is to secure financing. If you have sound credit, a strong business plan, and enough personal resources to offer as collateral, it’s more likely financial institutions will consider lending you money for your business.
What tips can you recommend to a startup looking to secure a business loan?