A small business loan gives you the financial strength you need for the long haul:
Starting a business can be a lot of work. You’ll definitely want to make sure that everything is as perfect as possible. A small business loan can make this seem like a much easier task. Covering payroll, startup costs, furniture, equipment, and more can all be taken care of with a small business loan. The idea may seem a bit intimidating at first. This article will demystify the loan process and give you some viable options that you’ll want to consider.
The first step starts with proposing your business:
A business plan is a formal tool that’s used to introduce your business to the world. With a great business plan in place, you’ll be able to easily sell a lender on your ideas. If you’re unfamiliar with business plans, there’s loads of information available online about them. You can view real-life examples that will give you ideas on how to craft yours. Videos, courses, and much more are also available online and often for free. If you need assistance in writing a plan, you’re not alone. Consultants and freelancers help to write business plans regularly. They’ll ask you some questions and provide you with a business plan for a nominal fee. You’ll want to be as detailed as possible and read over the plan. Modifications are often standard and may be included in the pricing. After you have a strong document in your hands, you’ll be able to create a presentation. Models, photos, drawings, and anything else that will illustrate your business is always helpful. Chances are, you’ll be interviewed and asked to present the information. You’ll want someone who has no previous experience or knowledge to offer you feedback and ask questions. This will help you prepare for the ultimate loan interview.
Credit is a major factor to applying:
Your personal credit will most likely be reviewed by any lender as a new business loan applicant. Although your credit isn’t necessarily pertinent to how you’ll run a business, it’ll give the lenders an idea as to how you operate. Getting a copy of your credit report from all of the major credit bureaus is essential. Trans Union, Equifax, and Experian will all provide you with a free copy once a year. It’s advisable that you purchase a consolidated report with all three bureaus and a FICO score. This will most likely be the information that the lender will have in front of them.
If you discover inaccuracies or negative items on your credit report:
Many people have items that are outdated still showing on their credit report. Sometimes, people will also have debts that they’ve fallen behind on or have forgotten about. If possible, it’s best to clear up any negative items simply by paying the creditor. Items that should not be reported any longer can be removed by the credit bureaus at your request. If you choose to dispute any debts, you’ll have to provide the credit bureaus with proof that the debt has been repaid or that there’s some type of legitimate error. If this is too big or too inconvenient of a task, credit repair companies will attempt to challenge the items on your behalf. However, the creditors are becoming increasingly aware that potentially valid debts are going unpaid. In turn, they’re replying with evidence that will keep the debt on your credit report. Typically, the services have proven to be successful to a certain degree for many borrowers.
Other factors that will be considered for approval:
Aside from a business plan and credit, assets will also be a consideration. The lender will want to know how much you’ll be able to make as an initial investment. The higher the amount is the more wiggle room you’ll have in other areas that may be lacking, such as credit. They’ll also want to ensure that you’ll have enough money to support yourself until the business is projected to make a profit. They’ll take many things into consideration such as the value of your property, retirement accounts, and anything else that is able to be liquidated. Also, the lender may ask you for collateral to secure the loan. With a sole proprietorship, this is often the case. It’s not uncommon for business owners to use their personal assets as collateral. However, once the business owner is able to secure financing without using personal collateral, it’s highly recommended that they do so.
Applying for the loan:
After you’ve done all the legwork, you’ll actually apply for the loan. Providing as much information up front as possible makes it much easier for the lender to make a faster decision. They may be able to give you some indication at your first meeting that will determine whether or not it’s a match. If not, there are many other sources of funding aside from a traditional bank loan.
If a bank loan isn’t right for you:
If you have credit or issues with a significant initial investment, you may want to look into other alternatives. Private investors and venture capital firms have become a popular option in recent years. These companies will overlook credit blemishes for an idea that’s clearly a winner. It’s important that your business plan is as thorough as humanly possible. Shows like Shark Tank are a good example of what it’s like to meet with a venture capital firm. If they’re interested in your business, they’ll make an offer for financing. Typically, they’ll require that they have some ownership and control of the company. For many new small business owners, this may be a blessing. For those who are inflexible from an operational standpoint, this would simply not work.
Whatever path you take, persistence is key:
Many small business owners have to apply to many different lenders and consider options they never thought of. Staying the course is the best thing that an aspiring business owner can do. It may also take a bit of work to get up to speed to even be considered by many lenders. Regardless of the outcome, the work and effort invested is well spent and will pay off significantly in time.