You have the perfect business idea and have decided to pursue starting your own business. Great! You found the perfect location and you know what it takes to get the idea going. The only holdup is raising enough cash to help your dream come to fruition. Here are eight steps to complete before applying for a business loan.
Create a Business Plan
Your idea must be on paper for your business to exist. A Small Business Association (SBA) spokesperson stated (in an email), “the blueprint that not only will guide the business owner, but also will serve as evidence to the lender(s) that [the entrepreneur] has a clear idea of what they want, where they want to go, how to get there and, most importantly, demonstrate their ability to repay the loan [is essential to securing a business loan].”
Educate Yourself
Building a business requires plenty of time and effort, so you should be as prepared as possible. The SBA recommends that you, as a potential owner, “educate yourself regarding business loans so you can understand and discuss intelligently with the lending officers when the time comes.”
Research Business Loans
There are many lending options available — research and choose carefully possible lenders for your venture. The SBA recommends approaching entities you’ve previously worked with or with whom you’re already a customer. This is an advantage in that you will not have to build a business relationship from scratch.
Prepare Your Loan Application for Approval
Once you know to which firm you will apply to, ask specifically which types of business loans they usually approve and their requirements. When you apply, have a complete loan application. According to the SBA, “many loan applications get denied or face unnecessary hurdles because of incomplete applications.”
Have Important Documentation Handy
You will likely need to provide additional documentation during the application process. Different lenders will have requirements tailored to their needs. Inquire about additional information needed to be prepared. The SBA states potential paperwork required includes the following:
- Personal credit and business credit history, if applicable
- Financial statements (personal and business), along with projected financial statements
- Projections of cash flow for the first year (at least)
- A personal guarantee from each of the primary business owner(s)
Prep Your Credit History
Your credit history must be provided in order to show credit worthiness and your repayment track record. Free copies are available from each of the credit bureaus (Equifax, Experian, and TransUnion) every 12 months. You can also visit annualcreditreport.com to receive a copy of your report. If you find errors, use this guide to fix inaccuracies. It is also recommended that you confirm credit score and consult with your financial planner on meeting the financial requirements.
If You Need Help, Ask Others Who Are More Experienced
Starting and running a business is often overwhelming. If you have questions and/or concerns about your business venture, find a local support organization. Their guidance could save you valuable time and prevent costly mistakes which could hinder receiving a loan. This information appeared originally on credit.com.
Image courtesy of freedigitalphotos.net/Vichaya Kiatying–Angsulee
