You need money to grow your business. For most entrepreneurs, the most popular options include obtaining grants for small businesses or applying for a loan. However, hastily getting a loan without understanding the market and knowing your growth potential can be detrimental to your business. When you apply for a loan, lenders will want to find reasons to approve your application.
They want to make sure that their money will be returned in time. Lenders will rarely measure the potential of your business to repay the loan based on what you tell them. What they want to see is a strong business plan.
Your business plan should include your company and product or service description, marketing strategy, management role and experience, financial projections, documented cash flow and executive summary. If you want to get a loan from a bank or lender, here are some important things that you need to keep in mind.
Banks and lenders assess your character to determine whether you are trustworthy or not. They usually look at your personal information like business knowledge and experience, references, education as well as small business and personal credit history.
Lenders review your purpose of getting a loan such as purchase of new machines or business expansion. They also assess external factors such as liabilities, customer base, competitors and economics as these matters can affect your ability to repay the loan.
Your business cash flow is very important. If your business is stable and it has a stable flow of income, lenders will see you as someone capable of repaying a loan. Lenders will also check if you have other means of repaying the amount you borrowed.
Your capital speaks of your confidence in your business. It also shows your ability to repay a loan. For instance, if you have significant business equity or net worth, you have higher chances of getting approved. If you are not willing to invest in your company, it shows lenders that they cannot have confidence in your business as well.
Secured business loans require collateral like your real estate, inventory, car, account receivables, securities or other assets. It reduces the risk for lenders as your collateral serves as another means of repayment. As much as possible, banks don’t want to implement their right of liquidating and seizing the assets of their borrowers. Providing collateral shouldn’t sound that bad if you want to increase your chances of approval. Most of the time, banks will work with their borrowers to find a good repayment solution.
Banks are not the only source of loans. You can also get small business loans from the government and private lenders. If you’re a startup, you can try online fundraising. It has become a popular method of getting investments from individuals who believe in the concept of your business. A funding website gives you access to thousands of investors from around the world who are willing to provide their assistance if you can convince them. These criteria are reviewed by lenders to determine your chances of approval. Polish each of these areas, so your small business loan application will be as smooth and quick as possible.