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How to Get a Business Loan
Do you have a great idea for a start-up? With almost 30 million small businesses, the USA is still one of the best places in the world to start a new business.
However, funding a business is not easy. Where will you find the capital you need for your startup? If you do not have savings or family to support you, you may need to apply for a business loan.
What do you need to do to get a business loan? How can you gather the needed information? Why not read our in-depth article to find out.
Build Up Your Credit Scores
If you ask any real estate business consultant, they will tell you that the first step you need to take when finding a business is to check your credit score.
Credit scores are a reflection of your ability to repay debts of different kinds. These could include credit card debts or housing mortgages. The higher the better.
If you are in doubt about the quality of your credit score, do not despair. By taking some basic steps you may be able to quickly improve your credit score.
If you have had debts in the past but then have worked to clear them, you should check that the data on your credit score is correct. If there are any inaccuracies in the recording of your credit history it could reflect negatively on your score. Correcting these mistakes means an instant boost to your credit score.
Be aware that since you are applying for a business loan, the bank or lending institution will likely ask for information regarding your personal and business credit score.
If you have not incurred business debt before, you may not have a high business credit score or not even one at all. You may need to prepare for this by taking out credit and repaying it faithfully. You may even be asked for collateral. More about that a little later.
Qualifications and Requirements
There is a broad range of lending institutions available and each has its own requirements for borrowing. Consider just 3 of these:
SBA-Backed Loans
If your business plan matches that of a small business, you may be able to get an SBA-backed loan. You need to have a very good credit history. Their checks may even stretch back to your federal student loan days.
However, if you have a clean record, you can likely meet the requirements for an SBA loan.
Bank Loans
Banks are very open about their individual requirements and often advertise perks and advantages. For this reason itis a good idea to shop around and consider what each has to offer.
They will generally offer loans that are underwritten by traditional factors such as credit history and personal assets.
Other Lending Institutions
There are a growing number of institutions, particularly online, that will offer you substantial loans with few requirements. These could be bad credit loans, for people who do not meet the credit requirements of traditional institutions.
However, you should be aware that the charges and interests associated with these lenders can be extremely high.
Gather the Needed Documents
Now that you have confirmed your credit rating, and selected the lender, you now need to gather the needed information for your application.
Typically a lender will want to see the following information for a small business loan:
- Tax Returns (Both Personal and business)
- Income statements from previous years
- Bank statements
- A copy of your driver’s license
- Any commercial leases you may be holding
- Documentation that shows relevant business experience
The lender will likely want to see a copy of your business plan and may even assess its likely hood of success.
Create a Strong Business Plan
When the bank looks at your business plan, they will want to see a well-thought-out methodical approach with minimum risk-taking.
The confidence that they have in your business plan will go a long way towards their granting your loan. What can you put in your business plan to ensure success?
You should start with a brief but detailed description of your company and its history. Next detail any current products and their success rate. Feel free at this stage to drop in the names and roles of your management team.
The main body of your plan will include your marketing strategy and step-by-step analysis of how you will reach your very profitable goals.
The bank will not only want to know what you have done but also how the industry will receive your products and services. You should include any information regarding analysis and research regarding current industry circumstances.
It would be good to provide some information regarding possible weaknesses in your plan or business. Although there should not be many, this will provide a degree of honesty in your business plan.
Ultimately, you should show that you have the cash-flow to meet repayments, especially when you hit the targets on your marketing plan.
What Collateral Can You Offer?
Unless your credit score is very high the bank will want to know what you can provide as collateral. Essentially, you are being asked to provide a list of valuable assets that the banks can take if you default on your loan or your business does not succeed.
Examples of collateral could include property, automobile, equipment, or items that can be liquidized to recover money.
While we all hope it will never be necessary, it is important to check what your lender will want as collateral as each will have different requirements. This is especially true for online bad credit lenders who may request a personal guarantee rather than physical collateral.
All You Need to Know About Funding a Business and More
If you are an entrepreneur with a great idea, you are likely wondering where you can find the capital you need to make your dream come true. By applying the principles regarding funding a business that we have discussed today, you can get the cash you need to create the startup of your dreams.
If you are interested in learning more about these types of subjects, why not check out our blog page?
