How to apply for a business loan for a small business
Small business loan is an option that small business owners can consider when in need of funds to finance their business. Statistics show that one of the reasons for business failure is the lack of capital. Instead of allowing lack of funds to ground your business, there is nothing bad in obtaining small business loan as long the business or project you want to finance is profitable. I guess the reason why some small business owners will not consider small business loan at all is the misconception that banks don’t advance business loans to small businesses. But this is not true. Banks actually offer small business loans to small business owners. The main reason why some have not succeeded in securing small business loan is that they don’t know the right way to go about it. Have you applied for small business loan before and you were denied? Are you contemplating applying for small business loan? Then this article is all about how to qualify for a small business loan. It provides a guide on the steps you can take that will increase your chance of securing the small business loan you desire. Below are the steps:
Start the process on time
As a business owner, you need to possess planning skill. In almost everything, you need to plan ahead. If you know you will need small business loan, you need to plan for it long before it is needed. Don’t wait till the time you need the small business loan before you start taking steps. In fact, it has been established that money is most expensive when it is needed. You need to establish relationships with lenders. Become their friend. Let them be familiar with you and what you do. By the time you are applying for the small business loan, it will be difficult for them to turn you down. If you need any assistance that will help you secure the business loan, they will gladly offer it.
Read Also: How to Secure Small Business Grants
Have a Business Plan
A good way to convince banks about your seriousness concerning your business is to have a business plan. A good business plan, well prepared will reveal many things about your business. Not only will it show your strengths and opportunities, it will throw lights on your weaknesses and threats. And most importantly, how you plan to manage or mitigate the weaknesses and the threats. Anybody that sees it will recognise that you know what you are doing.
Have a clear objective
You need to state clearly why you need the small business loan. People apply for small business loan for different reasons. These include the following:
- Acquisition of assets
- Business expansion
- Working capital
- Project financing etc.
You don’t just apply for small business loan because you feel that you need it. You should have a genuine reason why you need the small business loan.
Specify the amount you need
Having established your reason for the small business loan, you need to specify the amount you need. Some people usually make a mistake of quoting high amount with the hope that when the bank review the figure downward, it will come to the amount they actually need as loan. Unfortunately, this approach doesn’t work. It makes banks to assume that you don’t know much about what you are doing. That is, you are just guessing. They expect that you should have carried out some research so that your figure can be more realistic. The same thing applies if your figure is too low. They will believe that even though they advance the loan to you, the project will still fail because you will not have sufficient funds to complete it.
Read Also: Criteria For Securing Bank Loan
Define repayment Plans
Let the bank know how you intend to pay back. A cash flow projection will be a good way of convincing the bank. Don’t forget to consider the loan interest as part of your payments. Banks like to see this in your projections.
Search for other lenders
Don’t depend just on one bank. Approach other banks and other alternative lenders. You can be surprised to discover they offer start up business loans at more friendly rates and better repayment terms..
Apply for loan
You can then apply for the loan. Use your business letter head paper to apply for the small business loan. This makes it formal. Attach all necessary documents even when they do not request for them.
Banks are more comfortable to give loans to people who can provide collateral. The collateral is expected to, at least, be equal in value to the small business loan you are applying for. In case of default, they can fall back on the collateral.
If you are seeking for loans for starting a new business, you may not have sufficient assets to offer as collateral. In such case, if you can provide a guarantor who can stand for you, the banks may be willing to offer you the small business loan.
Read Also: How to Get Small Business Loans With Ease