Five things to do before applying for a small business loan
Owning your own business is such an exciting venture!
The unlimited possibilities of what the business may become, the people you can contact and service, and the ability to do what you love will undoubtedly leave you feeling fulfilled. However, no matter how tiny the business is, there are many issues to consider. One of the most significant facets of business is capital.
You need capital to purchase new stock, take care of your overheads, purchase machinery, or even hire additional services for your business to function. There may be times when there is not enough capital to take care of all the expenses needed for the business. In cases like this, a business loan is recommended.
However, before jumping to apply for a business loan, there are some things you need to do first.
5 things to do before applying for a business loan
- Design a business plan – This step isn’t just for the loan, but also essential for your business. Starting a business is a serious undertaking, and lenders want to be sure that you are aware of this. Lenders want to ensure that you are running a credible business, with the skills and knowledge needed to grow and make it profitable.
The business plan should include everything needed for the business operations, including business goals, competitor analysis, projected profit, projected revenue and expenses, and strategies on how you intend to grow the company.
- Prepare financial statements – Your financial statements will be significant to the lender, as it helps them to get a picture of what your business’ spending habits have been like in the past, so they can estimate your future projections.
This will also help them determine if you will have enough money to honor the loan. You will need to include your cash flow statements, income statements, and balance statements for the past 3-5 years. You should also include estimated statements for the next five years.
- Check your credit report – Your credit history is a major determinant of whether you will qualify for the loan, and even how much the lender will be able to agree to. They will want to be sure they are lending money to a client with a history of honoring their payments.
Additionally, your credit score will affect the interest rate and loan repayment time. If your credit is not in good standing, you may want to take some time to rebuild your credit before applying for the loan to avoid a refusal.
- Understand your loan options – If you are shopping around for your business loan, you should lay out all your options. You first need to know how much the loan will cost you. While you may have most of this information already written in your financial statements, it is good to have an in-depth understanding of just how much the loan will cost you.
This includes interest rates, fees, and monthly repayments. Also, look through all the terms and conditions of each loan offer. It is important to know beforehand any penalties for early or late payments.
- Make a decision – This is the exciting part. After carefully examining the options you are presented with, you then have a clear picture to make a decision. Remember, this business loan is an investment, so make the decision that works best for you and the growth of your business.