Every month–that’s right, month– entrepreneurs start 543,000 new businesses. Ever wondered how they do it?
I’ll give you a hint: not by batting their eyelashes and smiling. They got a loan. And if you’re ready to make your business idea a reality, you have to get one too.
But that raises a question: how do you get a loan?
Well, I can tell you one thing, there are no easy business loans. The loan officer will examine your finances with a fine-tooth comb, and if you get approved, you have to be able to pay it back. Otherwise, you could end up in serious trouble.
Don’t worry, though. We’re here to help. We’re going to show you how to apply for a business loan with these seven helpful tips.
1) Make a Business Plan
Going into the bank willy-nilly will get you two things: the letter “n” and the letter “o.” You have to prepare before you make that appointment with the loan officer.
Start with a business plan. Detail what your company is, what it does, and how it plans to make a profit (the bank will want to know). Then, put in how much money you’ll need, what you’ll use it for, and how you plan to pay the loan back (the bank will really want to know).
You can also list and partners or investors you have and any company officers. They could serve as potential guarantors on the loan.
It sounds like a lot, I know, but your approval depends on the details. A business plan will help you sort them out.
2) Understand What’s Available
Once you have your business plan in place, you need to know your options. Businesses are not created equal. Each has different needs, and the bank designs loans to meet those needs.
A few examples include:
Small Business Term Loans
Term loans have a set dollar amount. You use them for capital growth or a one-time expenditure. You pay the interest monthly and the principal over a period of six months to three years.
SBA Small Business Loans
SBA loans are backed and guaranteed by the Small Business Administration. Their interest is lower than most loans, and their repayment is more favorable. But their business loan requirements are strict.
Small Business Line of Credit
A line of credit allows you to access funds as you need them. You’ll have a cap like a credit card, and you won’t pay any interest until you use the credit. However, you do have to pay setup and renewal fees.
3) Know the Terms of the Loan
Think of the business loan terms as the fine print. You need to read them to make sure you’re making the right choice.
Start by asking yourself these questions:
What Is the Interest Rate and How Will It Change?
Interest rates vary based on the prime rate or LIBOR. Knowing the current one and how it will change will determine your repayment strategy.
How Often Is Interest Paid?
It’s usually monthly, but sometimes can be weekly.
What Is the Principle and How Is It Amortized?
Loan repayments combine the principle and interest, which affects your cash flow.
Do I Need Collateral?
It often depends on your credit and whether or not the loan is secured.
Are There Any Other Fees?
Check and see if there are any processing fees or administration costs to prevent any surprises.
4) Research Available Lenders
While banks are the most common, they’re not the only game in town. Research your lender options and shop around for the best deal.
Online lenders, like this company, can get you a cash advance quicker than the big boys. They work best if your credit is on the underside of good, offering unsecured loans with a minimal credit check.
Peer-to-peer services act as middle-men between you and the bank. They can make decisions faster and get you paid.
You also have community banks and credit unions looking to lend and compete with the bigger banks.
5) Prepare to Prove Yourself
Ok, so you’ve got a plan in place, you know the business loan you want and the business loan terms, and you’ve found the right lender. You’re done, right?
Wrong. Now you’ve got to work on you. Think of your loan application like a job interview. Put yourself in the loan officer’s shoes. Anticipate what questions he (or she) will ask and have answers ready.
Once you’ve prepared your answers, take inventory of your finances. Have every receipt ready for inspection and know your credit score. Make sure your profile is as low-risk as you can and clean up your credit if need be.
You need to have your financial ducks in a row, their feathers primmed, and their beaks on straight. Otherwise, you could walk out empty-handed.
6) Don’t Get Discouraged by Rejection
Look, it happens. I know we’ve talked about preventing it, but not every answer you get in life is going to be a “yes.”
If you get that dreaded rejection letter, don’t quit. Explore your other options.
Maybe you thought your credit was fine, then something changed. Maybe the loan you thought was right for you wasn’t. Maybe the loan officer had a bad day.
Learn from any mistakes you’ve made and keep trying.
7) Consult an Expert on How to Apply for a Business Loan
Whether you’ve already dealt with rejection or you’re nervous to start, we all need a little help sometimes. An expert can help you plan, find the right loan and lender, and take the stress out of starting a business.
Where do you find an expert on how to apply for a business loan? Why not start with us?
We’ve got everything a woman needs from business tips to personal style. And if we can’t help you, we can direct you to someone who can.
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