All the successful businesses you see out there started from somewhere. A few of them had enough capital to start off, but the majority relied on business loans. As a business owner, you can have access to many types of financing. All you need to do is to access an invoice factoring facility, bank overdraft or a long term loan. However, you will not just walk into a financial institution and secure a loan. You need to prepare yourself beforehand. You need to convince the lenders that your business deserves credit. Here are some of the things you should do before you contemplate applying for a business loan.
4 Things You Need To Do Before Applying For A Business Loan
Have a business plan
If you are planning to start a new business, it is vital that you come up with a business plan. You will use this plan to convince the financiers that you can put their money to good use. If you are already in business, it will help to convince them that you run a sound business. Also, it will tell them you have the right skill to help you run the business well. Ensure that the plan gives enough information about the business’ objectives. Discuss the market, projected revenue, competitors and expenses. Also, you need to show that you are best suited to run the business. Include an interesting executive summary to let the lender share your vision.
Have a financial statement
The financiers are interested in knowing how the business is doing financially. So, ensure that you prepare your cash flow, income, and balance sheet statements. Also, you need to include your projections for the next five years. Give details about how you will utilize the funds to move your business to the next level.
Build your credit score
Lenders are interested in knowing how you have been relating to your creditors in the past. They will want to look at the business credit score. So, it is crucial that you ensure your credit score is sound before approaching them. If you have never borrowed funds or used a credit card, this is the time to do it. It will help you build a good credit score to increase chance of accessing a loan. Note that a strong credit score will determine the amount of money you borrow. It will also determine the interest you will pay. So work hard to ensure that your credit score is positive. Aim at a score of more than 600 to increase your chances of getting a loan at favorable interest rates.
Research on available borrowing options
You need to find a bank or a financial institution with the best deal. It means that you will need to research the available options. Don’t look at the size of the bank but the terms of their loan facilities. Big banks have enough clients so their terms are fixed and may not be the best. Check with the smaller banks and credit unions. They are starved of customers, so they offer favorable terms.
Once you have worked on your score, put your documents together and approach some of the banks you had shortlisted. Listen to the requirements of each one of them and the offers they give. Drop those with unfavorable terms and negotiate with the best of them.