4 things to remember before applying for small business financing
Are you planning to turn your hobby into a business? Or do you have a niche idea that you want to turn into a small business venture? Setting up a small business may seem easy on the surface, but it requires as much risk-taking as a business of medium or larger size. To set up your small business, you may have decided to use your savings, or perhaps you are thinking about borrowing from a bank.
In the latter case, you will need to ensure that the lender has enough faith in your business to consider it worthy of the risk. To make your loan process hassle-free, here are a few things you ought to do before applying for a small business financing loan.
- Review your credit report : Before processing any loan applications, all lenders will want to look at your credit score. Personal credit is especially important in case of small business financing since small business owners often apply for a loan based on their own credit score. Applicants with higher credit scores automatically become eligible for lower interest rates and better terms on a financing loan. Also, take note that any failure to pay back the financing loan will have a negative impact on the owner’s personal credit history. Hence, it is necessary to carefully scrutinize the credit report and credit score before applying for a loan. Ensure that there are no errors and apply for rectifications immediately in case there are any errors.
- Create a sustainable business plan : When lenders are in the process of approving a loan, they will want to know whether the business is sustainable enough to enable the borrower to pay back the loan on time. A good business plan presented in a professional manner can help to fast-track the process of loan approval. Prior to approaching a bank for a small business financing loan, applicants should chalk out an organized business plan and draft a formal and professional presentation document. The plan must include a description of the business, specific objectives, primary products and services offered by the business, skills and experience of the business owner as well as the management team, target customers, target market, potential competitors, sales plan, marketing plan, projected income and balance sheets for the first few years, and financials that include expenses and estimated cost for starting and expanding the business.
- Calculate how much funding is required : As mentioned earlier, financials are an essential part of a business plan that will help in getting quicker approvals. Before drafting the business plan, draw up an estimate of business expenses and determine the amount of loan that the business can afford. Consider the effect of new capital on the small business and determine the impact of loan payments and interest rates on the bottom line of the business. Before applying for a small business financing loan, a loan performance analysis can be done to check the effects of a loan on the business.
- Look for local resources for business owners : Before approaching a bank or financial institute for a small business financing loan, explore local resources that specifically cater to the financing requirements of small business owners. You can approach SBA District Offices, Women’s Business Centers, or Veterans’ Business Outreach Centers. These centers can help out with loans. Moreover, they also offer free advice and counseling sessions for small businesses.
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