Taking out a business loan can be a game changer for a small business that’s ready to grow. But before they agree to finance your small business, most lenders want to know that they’ll be paid back in full. Here are five things to consider before meeting with the bank.
There’s more than one type of business loan.
There are several kinds of small business loans, including traditional bank loans, online business loans, line-of-credit loans and loans from Small Business Administration-backed lenders. Most people think of traditional bank loans first because they tend to be the most affordable option, but keep in mind that they’re are often the most difficult and time consuming to apply for.
The best way to figure out the loan and lender that’s right for you is to meet with your accountant and do your research. (Don’t have an accountant? We can help you find one.)
Your credit score matters.
The credit score from both your personal and business accounts play a large part in determining if you’re a candidate for a business loan — and it’s generally a good idea to keep the two separate. Separating your accounts helps build credit and prevents confusion when it’s time to file your taxes or apply for a loan. But that doesn’t mean you should stop paying attention to your personal credit score altogether. Lenders generally look at your personal accounts too when considering your application.
Getting your paperwork together in advance will save you time.
Once you’ve decided the kind of small business loan you want to apply for, you’ll need to prepare an income statement and balance sheet. A few other things to have in-hand when you’re getting ready to apply: bank statements, two or more years of tax returns and a full breakdown of what money your business owes/is owed.
You’ll need an airtight business plan.
If you want a lender to give you a business loan, you need to show them that your business has a future. A strong, well-researched business plan is a great place to start. Your business plan should tell your company’s story in a way that’s both detailed and compelling — that generally includes:
You should know how much you want and exactly what it’s for.
In general, new businesses need funding that will support a year and a half of growth, but talking to your accountant is the best way to determine a realistic number. (Note: Most small business loans are for $250,000 or less.) Once you know your number and exactly what it covers, prepare a statement that outlines your planned expenditures in detail for the lender.
Have you applied for a small business loan? Share in the comments.