Loans are an integral part of a business, more so for small businesses. Usually, small businesses require loans for their start-up capital. Even after the business becomes functional, a further loan might be necessary for the expansion of business or for some other business related requirements. Many banks and financial institutions offer these loans. However, they expect something in return for their investment. If you can put yourself in the shoes of the lender and think of the loan amount as your own, you can understand what these expectations are.
So, as a borrower, if you can meet these expectations, your chances of obtaining a loan become much stronger and you can obtain loans much more easily. In order to get a small business startup loan, the lender needs to know what you need the money for. Here, you need to be very exact and specific about stating your needs. Vague explanations never work. Secondly, the lender will want to evaluate your chances of being able to return the money. So, you should be able to convince the lender about the effectiveness of your business plan. The key here is the business plan and this is where your starting point should be.
Preparing for your small business loan application
First, prepare a well thought out business plan. A business plan is a step by step elucidation of how you plan to use the money that you borrow. The next step is to prepare a detailed estimate of cash flow into the business. This projection, if made precisely, convinces the lender that you will be able to return the money within a specific duration. You need to present a well prepared financial analysis of your business plan. In addition to these two major requirements, lenders will able want to see a record of your personal financial status and your credit record so that they get an idea of your financial planning acumen. A credit rating report is extremely crucial. This report is a history of all your past loans and repayment history, including your credit cards. Before you present it to the lender, make sure that you ensure its accuracy. Try to get into their heads, if you can.
Credit reports are public property. So, the lender who you approach can have a look at it even if you do not include it in the loan application. Nevertheless, it is very desirable that you do include these reports after checking for accuracy. In America, 80 percent of credit records have errors. Many are not updated regularly and if you’re rebranding a company, don’t get shy to say so. So, your credit record might show some loans which you have already paid as outstanding. This could bring down your rating and you might be denied the loan. Consumers are entitled to three free reports from the three controlling organizations, which are Transunion, Experian, and Equifax. So, you can apply for one before you apply for a loan.
Make sure that you apply well in advance because it sometimes takes weeks for the report to reach you. Also, in case there are errors, it takes more time to have them corrected. If your credit record is bad, which can be a result of bankruptcy, defaulted loans, high outstanding debts or irregular repayments, chances of receiving loans become lean. So, before you apply, make efforts towards credit repair. There are many ways by which a bad score can be repaired. You could also consult a credit repair consultant for advice. If you are not a start-up business and have been in operations for some time, the lender will want to see your tax return records. These records provide concrete proof of how well your business has done. The records also tell the lender if you are law-abiding and honest.
Meeting the small business loan lender
Once you have all the documents ready, the next step is to talk to the lender and try to convince him to lend. This is the most crucial aspect of getting a loan. Make sure that you are well prepared for the meeting. Here are some tips for presentation. In order to make a positive impact on the lender, you need to answer his questions and tell him what he expects to hear from you. In short, you need to convince him that you are a good risk and that you are efficient enough to make good use of the money.
When you present your project report, you need to be very elaborate on the plan. Highlight strategic points that work tremendously in favor of your business. Present charts and statistical pictures such as graphs for better clarity of your projections and the manner in which you plan to spend the money. You need to be confident when you talk about business risks. Do not present an unreal and rosy picture. Every business is susceptible to risks. So, rather than shying away from them, talk about possible risks and give a lot of emphasis on how you can tackle those risks.
Collaborating your business plan with strong proof of your financial stability can be very helpful in getting the balance to tilt towards you. Speak about your backup, in the form of some stable and reliable collateral. Here, collateral refers to your assets and their approximate valuation. You should also be ready to admit how much money you can spend on your personal finances. This reflects your belief in your business and your commitment towards it. Consider also to take some continuing education course so you’ll deal with all obstacles easier.
A lot of importance is given to your expertise and experience. It really does not matter if you are not very experienced, as long as you have the required expertise and the confidence to make things happen. When you talk about your expertise, make it a point to talk about your aspirations as well so that the lender can understand your train of thought. The way you deal with the lender is in no way different from the way you deal with a client. The secret is to be completely prepared to answer any question with a lot of confidence. When you believe in yourself and have a plan that is practical and has the potential to work, obtaining a loan becomes much easier.