Business loans are critical for a number of industries. Before applying for one, here are four essential tips.
Knowing how to go about getting a loan for your business can be very daunting, especially if it’s the first time you’ve ever gone through the process.
Over the last six or more years, funds have become much harder to secure from banks and other lending institutions, and the hurdles to jump over have tended to increase.
There are however, a variety of lenders to keep in mind when you need a business loan and steps that you can take to help increase your chances of success. Here are four key concepts to consider that will help you secure a loan to grow your business.
Related Article: Why Bank Loans Are Impossible to Come By
Look for Funds Before They are Needed
In order to secure a business loan, it always pays to build up a relationship with key contacts at lenders before you actually ask for anything. This is something that takes time and shouldn’t be rushed.
Trying to secure a loan under time constraints can effect your ability to do a thorough job on loan applications. Short deadlines and worrying about cash flow can cause you to rush collation of information and filling out of forms, and often won’t give you enough time to look around for the best deal possible.
Being desperate for cash can also come across counter-intuitive to people you’re dealing with and might end up having a negative effect on their decision about whether or not to lend you funds. Allow enough time for the process to go at its own pace and you’ll generally find you receive a more favorable result.
Know What You Want to Use the Funds For
Before applying for a business loan, spend some time outlining what the extra cash will be used for. Banks want to know if helping you grow your business is a sound investment. Being aware of what the money will be committed to will not only help you to see if you really need the extra funding, it will also assist you to know if you need more than you had initially anticipated.
Keep in mind that lending institutions generally steer clear of financing ongoing business losses, the purchase of non-essential business assets, or to pay for office build-outs.
On the other side of things, some of the good reasons to seek extra cash are to cover large seasonal sale variances, to finance an essential piece of equipment or a real estate purchase and for long-term software or product developments that will pay dividends in the long run.
Have a Detailed Business Plan in Order
Most lenders won’t consider a loan application without a solid business plan being submitted. To have the best chance of success your plan needs to:
- Be up to date and thorough
- Show plenty of research
- Know your customers (or potential clients)
- Have a mission and goals in place
- Put time and effort into calculating estimated sales and profit projections.
Image via SCORE
Although many business owners tend to rush through this part of the process in order to get their application in, don’t follow suit. A great business plan will help lenders to see that you have a road map for the future, showing your ability to be able to pay back the loan in full, plus interest and on time.
Related Article: 7 Best Free Business Plan Templates
Ensure Accounting Records Are Up to Date
Similarly, your accounting records also need to be up to date and accurate, otherwise there is no point putting in an application for a loan. Like your business plan, your accounting records will give the lender a snapshot of your firm’s financial standing at the moment, or else your own personal financial outlook if you need to secure funds for a start up business.
Provide lenders with items such as income statements, cash flow information, balance sheets, profit and loss projections and the like to demonstrate the financial health of the company. In order to tell if you can really afford a loan or not (or to what value), lending institutions will want to analyze things like the profit margin, gross sales and debt ratio of the business.
If you’re ready to grow your company in 2015, take the essential steps listed above. Preparation and planning, along with the follow through, will help you secure a business loan free of stress.