Business owners usually keep a lot of plates spinning while managing their enterprise day-to-day, and they often do so while keeping one eye on growth. But moving a business to the next phase (and sometimes just keeping the lights on) requires finance. While it's not the only option, many entrepreneurs will think first about getting a small-business loan—the tricky bit is making sure your application is successful. But if you're thinking about how to get a business loan, there are things you can do to make yourself more attractive to lenders. Here are a few tips to maximize your chances of approval when you need a business loan.
1. Build your business plan.
When you apply for finance, lenders will want to see a solid, clear business plan explaining what your business is all about, your goals, why you need a business loan and how exactly you will use it. You will need multi-year financial projections including accurate figures to show how getting a small-business loan will increase your profits, and how you plan to repay the loan. Make sure the amount you are requesting is not disproportionately large compared to the size and age of your business. Ideally, borrow the minimum you need.
2. Find the business loan that matches your needs.
While many entrepreneurs go straight to their bank when they need a business loan, it's worth keeping an open mind and considering alternative lenders too. Depending on the type of loan you want, comparing rates and providers using comparison sites could be a good starting point to help you figure out how to get a business loan. But if you have a more specialist type of borrowing in mind, or your business has a short trading track record or poor credit history, your choices might be more limited when you need a business loan. In this case, it might be worth using an advisor to help you find the best options available to you. Check lenders' requirements before you apply, to make sure your business meets the minimum criteria for annual revenues and length of trading history.
3. Prepare your paperwork.
You'll need to gather the right paperwork together to show to lenders when you apply for a business loan. This might include your company's annual accounts, tax returns, cash-flow statement, balance sheet, bank statements, profit and loss statements, legal documents or details of any investors. They will want to see that your business is growing and you have a pipeline of revenue coming in, as this will affect affordability. Lenders will check your business's credit report to see if you have had previous experience getting a small-business loan or other borrowing and whether you managed it well.
Before you start thinking about how to get a business loan, check your personal and corporate credit history and the information available about your company online, including on social media, to make sure it is all correct and shows your business in a positive light. If you're seeking a secured loan, you'll usually need to give a personal guarantee or offer collateral such as assets within your business. Some entrepreneurs literally bet the ranch by securing business loans against their home, but this is a high-risk strategy. Even if you're only looking for unsecured borrowing, you may need to show personal bank statements or tax returns to prove that you personally are solvent.
4. Rehearse your case.
You might find yourself nervous about presenting your business case to a lending manager. A little bit of preparation goes a long way here. Make sure you are clear on your financial forecasts and are sure of your key numbers so you will be unflappable under the pressure of questioning. State your case clearly and succinctly, only giving relevant background. Do a bit of homework in advance to get familiar with the terminology a lender is likely to use. This will make you seem like you have experience, you understand the process and are taking it seriously. All of this will make you more attractive to a lender.
While many entrepreneurs go straight to their bank when they need a business loan, it's worth keeping an open mind and considering alternative lenders too.
5. Compare available loans and negotiate.
You've worked out how to get a business loan and you now have a few approved loan offers on the table. You are in a strong position as lenders have assessed your company and decided they want your business. Why not try to secure the best deal you can by playing lenders off against one another? Try to agree a lower interest rate based on the other offers you have available. You should also negotiate a repayment schedule that is realistic and achievable for your company, ideally with some built-in flexibility in case you have cash-flow issues in future. Take your time to read the small print carefully, paying attention to any covenants (requirements) the lender expects you to fulfill, such as keeping a certain level of cash or having the right insurance. If you're not comfortable, try to negotiate changes. Make sure you understand how much you'll pay in total, and what happens if you default. Then, once you get that cash injection on terms you're happy with, get ready to push your business on to the next stage of growth.
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