Did you know that the Burea of Labor Statistics discovered that the failure rate for small businesses across the majority of industries is 20% in their first year?
Have you been contemplating applying for business loans, but aren’t sure if it’s the best decision to make for your business?
If you’re looking to learn more about business loans, we’ve created this quick guide to help you understand business loans better. Keep reading to learn more!
1. Before Applying, You Need to Figure Out How Much Money You Need
One of the most important factors in obtaining a business loan is figuring out how much funding your business needs. Many people don’t realize that they may need to determine the exact amount of money they need to apply for a business loan.
It would help if you also were careful to ensure that the fees that come with interest from the business loan are factored into how much money you need. Figuring out exactly how much money you need before you begin to apply for a business loan will help to prevent you from needing to apply to multiple business loans.
2. Figure Out the Type of Loan You Need
When you decide that it’s time for your company to apply for a business loan, it’s also important that you decide what type of business loan your business is in need of.
If you need a business loan to get your startup off the ground, know that receiving a business loan will be very difficult. Many financial lenders will need to take a look at the cash flow that your business has so that they can determine how much money you’ll be able to pay back for the loan.
On the other hand, if your business has been open for more than one year, there are several business loan options available to you. Some of these loans can include term loans, business lines of credit, invoice factoring, and SBA Loans.
3. Prepare a Strong Business Plan
Before you apply for a business loan, a lender will want to know how you plan on using the money that you take out for your business loan. This means that you should get together a strong business plan to display to the lender how you plan on repaying their money.
A lender will want to take a look at the details behind the plan and how you plan on using this loan to increase the profits of your business. You should be certain to include the projected financials and your company’s current financials in the business plan. It would help if you also showed still wonder how you have enough cash flow in your company to keep current expenses covered and how you’ll be able to repay the loan.
Some of the information that you should include in your business plan is:
- Management team
- Product description
- Company description
- Marketing strategy
- Sale strategy
- SWOT analysis
- Operational plan
- Facility plan
Providing a business lender with a strong business plan will not only give the lender an increased sense of confidence in your company. As a result, this will help to increase the likelihood of your company getting approved for a business loan.
4. Look Into a Lender’s Minimum Requirements and Qualifications
Before you apply to a business loan, you need to decide what lender you’re going to be applying to.
Picking out a lender before you commit to applying to their business loan will ensure that you’re able to meet their minimum requirements and qualifications. By meeting these minimum standards, you’ll make your Application with the lender much stronger.
Depending on the areas where your business is overperforming and underperforming, some lenders may grant you some flexibility in your loan. The best way to increase your chances of getting approved for a business loan is to meet or exceed all of the minimums that the lender has in place.
Some of the areas that your business needs to meet specific criteria include the annual revenue that your business generates, the credit scores of your company, and how many years your company has been in business. Information that a business loan lender will also look at include bankruptcies, or delinquencies.
5. You Need to Gather All Of your Legal and Financial Documents
There’s a large variety of other information that a business loan lender will look at when you apply for a business loan. Some of the documents that you will be required to provide the lender with include:
- Business licenses
- A picture of your driver’s license or state ID
- Business income tax returns
- Personal income tax returns
- Personal bank statements
- Business bank statements
- A balanced income sheet
- Articles of Incorporation
- Commercial leases
- A resume that shows your business experience
- Any Financial projections you have if your business hasn’t been open for very long
If you don’t have all of these documents lined up for a lender to look at immediately, it can greatly extend the time that it takes for your business loan to be approved.
6. You May Have to Provide Collateral
Some lenders may require that you have to provide collateral to back your business loan.
The collateral that you provide will be a piece of equipment, inventory, or real estate that the lender can seize if you don’t make your payments.
Providing a lender with collateral will give the lender an option to recover the money they lent you if your company doesn’t financially succeed or don’t repay the loan.
Understanding How to Increase Your Chances of Getting Approved for Business Loans
Taking out business loans can be stressful, especially if you aren’t sure what to expect when you go to apply for a business loan. Communicating with a potential lender about how much money you need, your company’s financial background, financial future, and providing the lender with collateral will increase your business’ chances of being approved for a loan.
Are you interested in discovering a business loan solution that’ll work for you? Click here to contact us today to learn more.