You are the owner of a small enterprise and you know how to run your business. But do you know what it takes to successfully apply for a small business loan? Much of the available information on loans focuses on home, auto and personal loans or other small loans. Here are some tips on how you can maximise your chances of getting a business loan application approved.
Tips for securing a small business loan
Ensure you have good personal credit:
Although you are taking out a small business loan, you are the owner of the business and your personal credit is a reflection of how you will run your business. Lenders will look at your credit score and credit report and would like to see demonstrated financial discipline and a good track record of making repayments. If you are starting a business, it is very important that you have a good personal credit record. If not, it is worthwhile to take some time to improve your score before you apply for the business loan.
Ensure your business has a good credit record:
Needless to say, the credit report of your business will be evaluated for the small loan. If your firm has been in operation for some time, it will have an independent credit record listing all loan obligations and repayments. It is essential to have a good credit profile in order to secure a small business loan.
Research small and big banks and non-banking financial institutions:
Do not limit yourself to either small lenders or large banks. Do the research and determine which lender is offering the best terms that suit your requirements. Do not cut off any alternative because of any pre-conceived notions of which kind of lender will give you a business loan.
It helps your application if you can offer an asset as collateral against your small business loan. This could be in the form of office equipment or machinery or any property (like office space) that is owned by the business. While it is not essential to offer security for a small business loan, it is a positive factor when your lender evaluates your loan application. You could offer a personal asset as collateral, but lenders would prefer an asset owned by the business.
Keep updated accounts and provide a good business plan:
Make sure that your accounts are in order and that you do not have messy account keeping. Lenders will not want to give you money if you cannot keep an accurate track of it. It is also very important to have a good business plan with cash flow projections and estimates on profitability and return on investment. Banks like to see that their money is being put to good use and will deliver them returns. If you are unsure about writing a business plan, you could ask a financial advisor to help. As your business grows, it is necessary to have someone with a financial background to manage this side of the business.