- Prepare to prove loan repayment. Lenders will prioritize this data. Small business owners may struggle to prove they can “service” the debt. Clean up your finances and use financial data in your business plan. Expect realistically and not too much. While in business, keep documents demonstrating you earned more than you spent.
- The financing will need your personal guarantee. Not all firms owned by entrepreneurs have sufficient assets to guarantee a loan. Lenders will thus want an individual guarantee from the firm owner, as well as any co-applicants or extra guarantors. You and maybe your business partners, friends, or family who secured the loan will have to put personal assets as security if you cannot repay it.
- Understand it’s not all about the money. For loan purposes, “global debt service” refers to the sum of all your monthly payments, including those to creditors and suppliers. The importance of the co-applicant increases if the company owner has a high debt load.
- Don’t conceal your finances. No one starts with a clean financial slate. Describe any past or present concerns that might hinder your application. They will be found accidently throughout the operation. It’s wise to establish up front that “bad marks” on your transcript or application don’t usually disqualify you. Being honest also displays dependability.
- Determine how much you need to borrow. The only two ways a company may go bankrupt are by taking on too much debt or not enough. Get enough financing for your company’s debut and early operating capital, but not so much that you can’t return it.
- Don’t expect the bank to bail you out financially. The business owner cannot expect the small business lending company to shoulder all the financial burden of running the company. In order to continue making loan payments despite unforeseen costs, you need to have access to extra funds.
- Understand the importance of a company plan. A business strategy may have several structures. What is important is showing that you understand your business’s operations and market, can clearly state its basic beliefs and objectives, and have done enough research to make solid financial predictions.
- Do not expect the lender to help you write your business plan. By entering their zip code on SCORE.org, entrepreneurs may get free business mentorship from SCORE and other services including SBDCs, CPA companies, and CPAs. Because market circumstances change, your business plan must be updated often. Your company’s plans will be affected by personal finances, your sector, and the economy.
- Equip yourself with some understanding of personal finance. You don’t need to be a financial specialist, but you should be familiar with your company’s financials and able to describe them to others. Make use of MOBI’s free starting a Business and Quick Start Entrepreneur courses, as well as its website’s Accounting and Cash Flows session, to educate yourself on the basics of managing money for a business.
- Discover the different loan possibilities for your business. A blog article earlier this week discussed the pros and cons of numerous financing choices. Banks provide low-interest loans and lines of credit because they are government-regulated and only lend to financially solid firms. However, many new, smaller businesses may not qualify. Credit cards are another bank service, but their interest rates are higher and may reach 28% to 29% if payments are late. Learn where you can acquire startup funding.
- The borrower should be careful. Estimate your loan’s effective interest rate. In recent years, internet and alternative financial institutions have increased small business lending availability. These companies have limited control and use multiple algorithms to calculate a “factor rate.” The interest rate may appear moderate, but when converted to an APR, it may soar into the triple or high double digits.
- Community development finance institutions lend to small enterprises. Contact your city’s economic development office, regional SBDC, or bank’s commercial lending department to find out which community development banks provide small company loans. Many of these organizations may be more flexible than banks since they benefit their communities.
