Working hard and around the clock will help you grow your business to a certain extent, but there will eventually be a time when you will need more funds to take things up a notch.
The lack of funds should not prevent you from reaching your business goals. Whether you are starting a new business, or wish to expand an existing one, securing the best small business loans can do wonders for you if you have a solid plan.
However, the real question here is how you can secure business loans for SMEs. It may seem tricky or frightening even, but it is not impossible if you follow these steps.
Establish why you need a Business Loan
Whether you need a business loan for operational costs or capital expenditure, you need to establish why you need a business loan in the first place. Getting a business loan for the sake of it just won’t cut it.
You will need to specify what areas of your business need funds desperately. Enough emphasis cannot replace the fact that you will need an expense plan, without which the business loan will be of no use, as it will most likely go to waste.
Determine the Amount Required
Once you know why you need the business loan in the first place, you will need to determine how much funds you need.
Lenders not only want to know how much funds you require but also how you plan on utilizing it. After determining the funds you need, add a little extra to be on the safe side. It is always better to have a bit more than falling short to meet your business expenses.
Choose the Right Type of Loan
When it comes to SME loans, you have plenty of options to sink your teeth in. Term loans are quite conventional, but you could also look into getting an asset-based loan or a bank guarantee. If not for those, you can always opt for government initiatives, like the 7(a) loan program.
Evaluate your Business Plan for Success
Even though you are starting a new venture or expanding an existing one, loan providers will want to take a look at your business plan. They will want to know your current standing, and what the future entails for your business. Pointing out your goals and ambitions are not going to be enough; you will need to highlight the steps you plan to take to achieve them.
Analyze your Credit Score
Apart from evaluating your business plan, lenders will analyze your credit history to see what they are getting themselves in. You must anticipate how lenders will react to your credit score, and for you to take appropriate actions if the need arises.
Gather Important Financial Statements
Before lenders can make an informed decision, they will need to review your accounting records and financial statements. You may even be asked to provide an audited version of the said statements.
Meet the Preliminary Business Detail Requirements
From securing a legal identity, registering the business name, and ensuring that you have obtained the necessary clearances and certificates, you will need to meet the preliminary business detail requirements without fail. For instance, if you own a food-based company, you may need the FDA certification before you can apply for a loan.
Opt for the Best Provider
Just because a provider seems excellent, does not mean it is so. There are a ton of loan providers out there, each one offering something to be better than the last, making it essential for you to take your time to do your homework to opt for the best provider out there.
You also need to take into consideration the fact that even a great provider might not be all that great for your business. It depends on your own business needs and requirements, which will help you determine which provider is the best.
To find the best provider here is what you can do:
- Look for a provider that has been in the industry longer than others.
- Check reviews to find out about other business experiences with potential providers.
- Compare potential providers to see which one is offering the best rates.
Decide on Collateral
If you think getting an asset-based loan is a good option, then you will need to decide what you will offer as collateral. Choosing the right asset is essential, along with providing all the necessary details about it to avoid any delays or the possibility of rejection altogether.
Collect all Necessary Documents
If it is not visible enough, you will need to collect all the necessary documents beforehand. It includes loan proposal, business plan, financial statements, personal papers, and all other reports that are required while applying for a business loan.
Applying for a business loan does not have to be complicated. It depends on how willing you are to go the extra mile to ensure your business plan is top-notch. At the same time, you need to position your business in such a way that it will meet all your goals.
In case your business loan gets rejected, ask your lender to provide feedback so that you can review and improve your application. Even the most qualified borrowers get rejected because their loan proposal is incomplete or vague, so don’t give up.
The factors associated with qualifying for a business loan vary from lender to lender. If a lender does not give you credit, you can always turn to another. For this reason, you will need to prepare to approach several lenders at the same time. Not just because you aren’t sure, but also because you can compare them to see which one is offering the best terms and conditions.
Remember, if you are having a hard time sorting out all of this, there is no harm in asking a professional for help, which will eventually save you time and money.