Is your small business growing? Do you need a little more capital to take the next steps, or perhaps enough capital to turn your idea into a business? If so, that means it’s probably time to consider and apply for a small business loan. These loans come in a variety of forms, including those backed by the government and for women or minority-owned businesses and more conventional, bank-backed loans.
The process to qualify for a loan can seem intimidating, but with preparation beforehand and knowledge of the process, it can be pretty straightforward. Lenders will look at several factors when considering your loan application, including the economics of your business, overall market, current assets and debts, and your personal credit history. Be sure to outline the qualifications both of yourself and your leadership team to successfully run the business.
Having an organized, well-prepared business plan is often the best way to address most of these points. Make sure your business plan includes details on your current business income, debts and assets, as well as an account of inventory on hand to let the lender know you’ve planned for those items. A business plan is also a great place to outline your place in the market. It gives you an open forum to explain what value your business provides in your market segment, who the competitors are and growth potential over the next few years.
Lenders typically like to know your business plans to use the money borrowed with a small business loan. Having a clearly outlined plan for spending the money and how those expenditures will deliver returns to your business’s bottom line in your business plan helps lenders understand how you will be able to repay the loan. It also helps you develop measurable goals with timelines for your business and, in the case of loans to acquire assets, gives the lender a ready list of assets against which you are borrowing.
As a small business owner applying for a loan for your business, be prepared to have the lender examine your personal credit. It may ask you to personally guarantee the loan against the business failing. If there are problems with your personal credit, prepare written explanations beforehand to outline both what led to the negative scoring and what you’ve done since to rectify the problem.
When you apply for a small business loan, it is important to remember the lender is taking a leap of faith that your business will be successful. The first question a lender will ask is different from what you may ask yourself or your business, which is “Will this business be able to repay the loan?” Be ready to answer that question with documentation to be successful in securing a business loan.