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There comes a time when pretty much every business needs a loan. Even if you are generating consistent profits, if your margins are low it might be years before you have saved enough to expand your business or built up sufficient reserves to pay your bills during a bad market.
These are situations when a business loan can be helpful. However, lenders are not simply going to hand over their money because you promise you will pay them back. In fact, they are unlikely to hand it over at all unless you can demonstrate to them that you are competent and well-prepared. This is not easy; they will scrutinise your application thoroughly.
This short guide provides some suggestions to help get your loan application approved.
Prepare records to show you can pay it back
The application process is mainly designed to answer the question, can you pay the loan back? To convince lenders to think that the answer is probably yes, you will need evidence. Prepare documents which show your recent income and outgoings. With the money left over, can you afford the loan repayments? This will add more weight to your business plan, which lets lenders know how you will spend their money and forecasts the profits it will lead to.
Be prepared to personally guarantee it
Many business loans are secured, which means the lender will take possession of some business assets if you do not repay them. However, some small business owners do not have assets that the lender believes will cover the value of the loan. They may ask you to secure the loan using your personal assets or to have a guarantor.
Be honest about your financial situation
Lenders will investigate your credit history, so they will learn the facts about your finances in any case, but they are more forgiving if they hear them from you first. They understand that some people will have blemishes on their financial record, but they can be forgiving if you have learned from your mistakes. However, they are unlikely to forgive you for trying to pull the wool over their eyes.
Be prepared to find additional funds
One of the common reasons to get a loan for your business is cash flow management. Sometimes, businesses do not receive enough cash to pay their regular costs. If they expect the cash to come eventually, they get a loan to keep operating in the meantime. However, if you do this and things take a turn for the worse, you can ask your lender for more money but they might not say yes. It is their job to keep their business going, not yours. Even if you are convinced they will eventually get all their money back, they might have already lent the maximum they are allowed or comfortable to. Try not to get into a situation where your business is relying on one lender to survive. Have other methods of funding prepared.
Conclusion
Small business loans are risky, and lenders only approve them when they are confident that they will get their money back. These tips will help show them that your business is on the right track and that you as a person are competent, professional, and honest
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