Many small businesses need money for a variety of reasons. While there are plenty of lenders to choose from, many of them are a lot more rigid in their lending practices towards small businesses and startups than they are towards larger corporations. This does not mean you can’t get the funding you need when you need it. It just means you should be careful in how you apply for it.
What to Do
- Know Your Funding Options: There are so many funding solutions and products for small business owners to choose from. Knowing which lending products are best for your situation can help to show lenders you are prepared and not just applying for financing blindly. This also helps to ensure you are filling out the right paperwork and are not wasting your time applying for something you don’t want or need.
- Have a Good Credit Profile: Even though you are applying for a business loan, your personal credit score will be weighed heavily. If your credit profile is not in great shape, take a good look at it and fix any negative information and delinquent accounts before applying for business loans to improve your chances for approval.
- Have an Ironclad Business Plan: Having a solid business plan shows lenders you are serious, prepared and in it for the long haul. This can play a huge factor in whether or not you are approved for loans and the amount you are offered.
- Have Impeccable Profit & Loss Statements: Lenders use your profit and loss statements to determine if they want to approve your application or deny it. P&L statements show lenders how reliable your income and profits are, how professional your organization is, and how ethical you and your business are. Good profit and loss statements can encourage lenders to consider your business an acceptable risk to extend funding.
- Maintain Financial Records: Banks and small business lenders expect applicants to have their paperwork in order and readily available when they apply for loans. Being disorganized and not having the required documents can lengthen the amount of time it takes for them to make a decision about your application. It may also hurt your chances for approval.
What Not to Do
- Lack of Collateral: Lenders expect their business customers to have some kind of collateral on the line that can be used in case they default on their loans. Even if you have no intentions of defaulting or plan to pay the loan back right away, you should still have collateral to put on the table if they require it.
- No Equity: Not having any or enough equity invested into your project is often a sign to lenders that you are not willing to invest into your business’ success. Why should they consider investing into your company when you won’t do so yourself?
- Not Shopping Around for Lenders: It is to your advantage to shop lenders to find one that will give you the most favorable terms. Favorable terms can mean the difference between you successfully repaying the loan or defaulting in some cases. Even if you plan to apply for funding through the Small Business Administration, you should still research your options first.
- Not Specifying How the Loan Will Be Used: Failure to show lenders what you plan to use the loan for is a clear sign you are not really ready or expecting to be approved. Lenders want to see that you have a clear plan detailing how the money will be used if they let you borrow it.
Whether you are looking to expand your business or to start a new one, funding is something you can’t do without. Knowing how to properly apply for loans can boost your chances for approval and speed up the funding process. Before applying for any business loans, reflect back upon this list to ensure everything is in order first.
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