Starting a business costs money. More often than not, that will require you to seek a business loan so that you can secure the funds you need to get your business off the ground. Whether you’re just starting your business and need money to cover launching costs or whether you’re a more established business looking to expand, business loans can help. The trouble is this: It’s not always easy to get a business loan. Fortunately, there are things you can do to bolster your chances of securing the funds you need. Here are 5 tips for increasing your chances of getting a business loan.
Have a clear vision for your business – and write it down!
A strong business plan is one of the biggest factors that will determine whether you are successful in securing your loan. Lenders want to ensure that their investment is a good one. They want to know exactly what you intend to do with the money, a realistic view of what you can achieve with the money. One of the most important aspects of your business plan is the executive summary. In this section, outline your vision concisely but thoroughly. This is how you will “hook” your potential lender. If they don’t like what the read in this section, they won’t be compelled to read more.
Be thorough with your financial information
As stated above, lenders want to be as sure as possible that their investment is going to be a good one. They want to get a clear picture of your business’ current financial situation. Whereas your business plan outlines where you envision your business going, your financial information tells the story of where you are today. This will help a lender determine whether lending to you is a good risk.
Set yourself up for success
Before you approach a lender for a loan, pay off any recent credit card debt. This will not only improve your personal credit score, but will also likely have a positive effect on whether you get approved for a business loan.
Explore your options
There is no rule that states that you have to try to secure a loan from your personal bank. It may be a wiser choice to spread your loan risk over several different banks.
Know what you’re looking for
“Business loan” is just an umbrella term. Within that category, there are several different kinds of loans that could be available to you. It’s important to know what you are looking for. Are you looking for a longer repayment schedule or a quick payback? Can you put up a personal guarantee against the loan? Do you want a secured or unsecured loan? All of these things are important considerations when choosing the lenders you approach.
Invest your own money
You may think that if you had the money to invest in your business you wouldn’t need a loan, but if you can inject even a small amount of money into your business it can bolster your chances of getting a loan because it shows that you are willing to inject personal money into your business, which makes you more invested (literally). A lender will see this as an indication that you won’t likely take any crazy risks, either with your own money or with theirs.
Approach smaller banks first
Although it may seem to make more sense to approach a bigger bank with deeper pockets for your business loan, it can actually be more beneficial to approach a smaller bank first, especially if you are a smaller business. Small banks understand the plight of small businesses and may be more likely to lend to them.