How to Get a Small Business Loan
When your small business hits the growth curve you will inevitably need to approach lenders for some financing to tap into new opportunities. Getting funding from these lenders is not easy and you will need a lot of help to navigate the process. If you’re in the market for debt financing here are a few tips that can help make the experience easier for you and your business.
1. Create a Business Plan
The first thing lenders want to look through when you apply for funding for your business will be the business plan. A realistic business plan shows the financial projections and the reasons underpinning them. It also details your experience and the collateral you bring to the table to secure the funding.
Without a business plan, lenders will not engage in substantial funding talks with you as they don’t see how you might have a viable business case.
2. Improve Your Credit Score
Your credit score is a key determinant of the funding options that will be available to you. Depending on how far off you determine that you need a small business loan, you can prepare for it by working on your credit score.
In some instances, your personal credit history will factor in your application. For example, if your small business is less than three years old, lenders will look at both your business and personal credit history.
Get a credit report from credit reporting firms and check for any errors. You can petition a credit agency to work on an error and escalate it by filing a credit dispute report if necessary. Pay off any outstanding debt to shore up your credit status. A credit score of 700 and above is considered good, and it makes you attractive to lenders as a low-risk borrower.
3. Understand the Type of Lender You Need
Many small business owners aren’t aware that there are different types of lenders in the market. Understanding the one most suitable for you will help you identify your best finance options. Commercial banks are perhaps the most recognizable lender type and are ideal if you have collateral to offer, can wait to access the funding and possess a good credit score.
Online lenders are a recent phenomenon who ride on the back of technology’s proliferation. Such lenders would be most suitable for you if the collateral is a problem, if your credit score is low and if you need the financing quickly.
The other class of lenders for a small business loan are microlenders who are non-profit organizations offering short term loans. They are suitable if your business is still at relative infancy and can’t get funding from commercial banks.
When shopping for financing from lenders, you should assess the stage your business is in, the kind of funding you require and any collateral to know which will work best for you. Once you identify the type of lender you prefer, look at several options in that class to get good options.
4. Consult a Professional
Not all small business owners know how to ready themselves and their organizations for the application process. If you find that you need professional advice on the process, then consult with the Small Business Authority (SBA).
The SBA is an organization dedicated to supporting small companies in various ways. When it comes to preparing your business in applying for financing they can offer training on business plan development. If you need mentorship on how to go about the process, the SBA will pair you up with a mentor who can guide you through the application process.
At one point your small business will need to apply for financing from lenders, and you need to know how to go about it. Prepare your business plan, look at who to approach and if possible get mentors to help you through it.