How To Apply For A Business Loan For Small Businesses
Managing Director + Co-Founder
Most business owners are going to need startup capital to get the ball rolling for their business. There are a lot of different ways to get small business loans, whether it be from banks, credit unions, from peer-to-peer lending platforms, and so on. If you’re looking to get a small business loan, however, you need to follow the tips below.
Be clear with your needs before applying for a small business loan
Before you apply for a small business loan and ask for any money, know exactly how much you’re going to need. Don’t make any applications for funding or apply for any small business loans until you have been able to sit down and write out the budget on where that money is going to be going. If you can’t articulate how much you need and what it’s going to be spent on, then you do not give lenders much confidence that you’re going to be able to manage the investment well. There are financial statement drafts you can find online to help you build your case, as well.
Take a look over your credit history and score
Your credit score is a numeric indication of how reliable you are, from the viewpoint of lenders, at upholding your financial obligations. For new business owners, expect your credit history to be scrutinised. As such, it’s wise to scrutinise it yourself, first, by getting a copy of your credit history before you apply for any small business loans. You may be able to identify and remove errors, such as outstanding loans that are not yours or have been paid a long time ago. A good credit score is considered essential for business loans, so you want to get it up to above 700.
Find the best small business loans to apply for
If your business is just starting out, then going to banks and similar traditional institutions may not see much success for you. For one, they prefer lending to established businesses, rather than startups, and they also tend to lend more than most small business owners really need to get their business going.
The internet has democratised small business funding to some degree, and websites like Aurora Capital can help you find the lenders that match your needs. There are over 30 lenders offering a range of finance options for small business owners including secured business loans and unsecured business loans, so it may be worth looking into.
Look into other borrowing options from small regional banks, commercial lending institutions, and financing options like asset financing. See which funders fit your needs and which you have the best chance of making a successful application to.
Write a business plan
Your business plan is going to be the most important document from the viewpoint of the lender, right behind the financial statement. In fact, the business plan is going to help you inform the financial statement. It’s a document that shows financial projections, as well as the value of any assets or collateral, an analysis of your business’s market, and the steps you have to achieve goals that will help grow the business. It shows lenders that a small business owner does, indeed, have reasonable plans for how they’re going to use the money they borrow for the business.
Prepare your pitch for small business loans lenders
It’s not always the case, but in many circumstances, you’re going to have to make a presentation in person, going over the details of the business plan, how you plan to use the money, and how it will lead to the growth of your business. You need to be compelling in pitching the business, and strong with the financial side to back it up. Make sure you have an executive summary ready, as well, which effectively provides an overview of the business plan.
Do not attempt to leave out any key information
We want to be honest most of the time, but there may come a moment where you’re tempted to omit information that a lender is asking for, or to “massage” the facts so they speak more in your favour. However, most lenders are very well versed at picking out any inconsistencies, especially with the number of documents you have to provide to cover your side, so avoid any untrue statements to avoid shooting yourself in the foot, metaphorically speaking.
Are you ready to apply for your small business loan?
If you’re looking for funding and you plan on borrowing it, be it from a bank or the broader range of modern financial institutions available today, make sure that you’re prepared. Look at your options and ensure you have your financial statement, your business plan, and a good understanding of your credit ready. Without any of these, or the other steps mentioned above, you risk not getting the funding that you need.
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