When looking to fund a new start-up or small business or expand one you currently run, banks and other private lenders are the most common sources people look toward to get the money they need. Before you apply for a business loan, though, there are key points you need to consider:
Do you have a proper business plan?
When applying for a loan, you need to make sure that you have a clearly outlined plan that shows any history the business has, and most importantly how the business will progress into the future and generate the revenue necessary to pay back the loan.
Have you been keeping an eye on your credit score?
If you don’t have any business history to fall back on, lenders are most likely going to look at your personal credit history to determine whether or not you are capable of running a successful business in their eyes.
Are all of your financial documents in order?
Using software Like Turbo Tax and some free tax tools they have and can be a great way to reduce time when keeping financial records, but having a professional accountant go over everything before heading to the bank can be a good idea to make sure nothing’s missed. Income statements, personal tax returns, balance sheets, etc. need to contain all the necessary information (without any accidental mistakes) for the best chance at securing your loan.
Do you have financial projections?
The lender is giving you money to either start your new business or expand your current operation so it can be a wise choice to not only have your business plan handy, as previously mentioned, but also have exact details on where the loan will be going to, how it will be used, and what (and when) the returns will be on the investment.
Do you have collateral if necessary?
If you have equipment, property, or any other things that can be used as collateral for the loan you need to let the lender know. If you will be using the loan to purchase all of these things, you may have to personally guarantee the loan with your personal collateral such as your vehicles, home, property, or other assets.
Do you understand the payment structure?
Make sure you get a general idea of what the lender’s payment structure is before presenting your business plan and financial projections. If they require monthly or weekly payments of the exact amount, factor that into your plan; if they require fees to initiate the loan make sure you have it prepared as well.