What You Need to Do Before You Apply for a Business Loan
Don't apply for a business loan until you have a solid plan of action. Any bank, credit union, or financial institution is more likely to approve a loan where the borrower is experienced and has a solid business plan in place. Here are five things to do before you fill out a business loan application.
Create a Solid Business Plan
You need a professional business plan before applying for a small business loan. The plan should include a guide into your business goals, how you plan to achieve those goals, how you plan to make your revenue, what you need for a workforce, and what you plan to spend to keep your business running.
Be ready to provide a spreadsheet or graph showing your projected cash flow and expected expenditures. They'll also want to know if you plan to have investors and how you plan to handle marketing and sales.
Gather and Organize Your Paperwork
Many banks and credit unions want to see at least two years of experience in your business. This makes it tough when you are starting out. When you apply, plan to have your paperwork organized and easy to access. Lenders will ask to see your tax forms, often both business and personal. The personal tax return is crucial if you haven't yet grown your business. If you're offering collateral, which may be necessary, you need an appraisal in hand for that collateral.
Any legal paperwork must also be included. This includes business licenses and/or permits, rental agreements, franchise paperwork (when applicable), and any contracts you've made in relation to your business.
Raise as Much Capital as You Can Before Applying for a Loan
The goal is to keep your small business loan as low as possible. Raise capital on your own by selling unwanted items, cutting expenses to build up your savings, or ask your family members and friends to contribute. You can also search for grants to help raise funds, but more on those in a bit.
Search for Business Grants
Reduce the amount you need to borrow by considering business grants. It's unlikely you'll get grants that completely fund your new business, but you can cut the amount down. The Small Business Association (SBA) has a helpful website for searching for grants for small businesses. Many are very specific, such as grants for businesses that participate in scientific fields, but there is free cash for businesses if you qualify. Once you have free grant money, you can borrow the rest of your funding.
Work on Improving Your Credit History Months in Advance
Before you apply for a loan, order your personal credit reports. Many companies look at an applicant's personal credit score and their business credit rating. You need time to correct any mistakes, so do this as far in advance as possible. If you do find errors, government agencies have 30 days to investigate your complaint and 5 days to notify you after their investigation is complete. If you're not happy with the outcome, it can take even longer or require a lawyer's help.
You also need to make sure your accounts are paid up and that you do not have any late payments looming. Therefore, it's often best to start considering your credit standing a few months before you apply for a loan. Give yourself time to make improvements that can help your chances of getting approved.
Are you ready to take out your business loan? Once you've got your plan, paperwork, and credit score situated, head online and complete our free form. We take the hassle out of a business loan by finding lenders who are interested in working with you.