What to Know About Applying for a Business Loan and How to Get One
Getting a business loan today can be a lot more difficult than it was 10 years ago. In one 2015 survey from the Federal Reserve, about 50 percent of small business owners didn’t receive the funding they needed to grow their business after applying for a loan. The most common reasons why business loans are denied are a lack of preparedness and an insufficient application. Here are some tips to make your loan application run more smoothly.
Know What You Need
Although there are many types of financing available to you, you should have a general idea about what type of loan you want. You should have a specific plan for the funds. Lenders want to see that you know what you want to accomplish. You’ll want to know exactly how much capital you need. Asking for too much or too little can make you seem unprepared to the lender who wants to see a return on their investment into your business.
Show You Can Pay Back the Loan
You’ll want to forecast your profitability over the term of the loan to show the lender that you can make payments. This will put you in a better position to ask for the loan. Lenders don’t want your business to fail. Over-stretching your cash flow position can put you in a bad position.
Although your lender may not require each of these documents, having them ready will not only prove the legitimacy of your business, but also your seriousness. Have your business license and registration, depending on your industry, your specific licensing, too. If your business has multiple owners, even silent owners, you’ll need written permission to apply for a loan. You may also have to provide credit information for each partner.
A well-written business plan will help your lender see your short- and long-term plans for your business and provide a lot of information about the business. It demonstrates that you are thinking about the factors that will make your business successful.
Your lender will almost certainly require a long list of financials when you’re applying for a business loan. You’ll need to get two to three years of tax returns, your profit and loss statements from the past two years and business banking statements for up to a year. You may also want to prepare a sales forecast, especially if your business is new.
Check your business credit score and your personal credit information before your application. Make sure the reporting bureaus don’t have any errors on the report. The better you prepare before applying for a business loan, the more likely you will get approved.