How To Get A Small Business Loan?
As a small business owner, there are times when you may require funds beyond what you can supply by dipping into your savings. Unsecured small business loans allow you to borrow money for expanding your existing business or investing in a new one without putting up any assets as security.
However, before you rush to apply for a small business loan, you need to ensure you’ve got the best possible chance of being approved for the loan. The more prepared you are, the better.
Here’s how to get a small business loan from a lender:
Decide What The Money Is Needed For
Deciding that your company needs a business term loan is only the first step. You need to ask yourself how getting a small business loan will help your business. It is likely that potential lenders will ask you this too. You can get a small business loan to finance the day-to-day expenses of your business, an additional office or acquire new equipment, or for business needs including cash flow and workforce expansion. It is not a good idea to apply for a small business loan if you want to finance ongoing losses in business or the purchase of non-essential business assets.
Evaluate How Much Money Your Business Needs
Before you start looking for a business loan, you need to determine the amount of money your company needs. If you apply for a loan amount that barely covers your business needs, chances are you will face problems with a lack of working capital sooner than planned. On the other hand, if you overestimate the loan amount required, potential lenders may question your assumptions and credibility. Therefore, you must do your research well and work out a reasonable estimate.
Have A Business Growth Plan in Place
Work on a detailed business proposal. This is where you can demonstrate how the business term loan – and the needs you’re using it to finance – will deliver a revenue uplift that exceeds the cost of repayments. This means you need to include a cash flow forecast and profit and loss budget in the plan. Also consider incorporating an analysis of your business’ marketing techniques and market position. A plan that is researched and presented well can evoke a positive reaction from the lender.
Find Out What Lenders Look For
Lenders consider a variety of factors when deciding whether or not to approve your business term loan application. The longer you’ve been in business, the more comfortable lenders will feel in offering you a working capital term loan. All lenders place stock in credit scores, and a score in the 700-800 range increases your chances of getting a small business loan. Lenders will also check whether your monthly revenue is sufficient to successfully repay the business term loan.
Be Aware of All Aspects of Your Business
Once you apply for a business term loan, potential lenders may discuss with you any aspect of your company. This helps them determine whether the risk to them is as close to negligible or not. Therefore, research on the possible questions that a lender may ask you. Create in-depth answers to all of them. When you meet the lender, present an honest account of your business. This means you have to be comfortable discussing everything from your past financial performance and future plans to the most pressing challenges that you’re facing as small business owner.
Keep Your Company’s Latest Financial Records Up To Date
A lender will also expect to see your company’s latest financial records. These will include IT returns, balance sheet, Form 16 A, recent bank statements, profit and loss statement with Annexure, and anything else that provides proof of revenue. If you fail to submit these documents, it will threaten your chances of getting a small business loan approved. A tip: Keep a reliable record of incoming accounts receivables to save yourself from scrambling to compile everything at the last minute.