Whether you want to expand your current business or are looking for someone to invest in your start-up, at some time or another, most small businesses will need a small business loan. Business loans are necessary not only because they provide small businesses the financial support that they need, but also so that businesses can thrive throughout periods where the economy might not be particularly strong. For economies to thrive, consumers need to keep buying – and consumers can only keep buying if there are enough businesses out there providing them with the goods and services they need.
Learn how to get a small business loan, whatever your circumstances, with our step by step guide.
Get to Grips With Your Credit Report
If you’re a new business, you may not have built up a credit score yet and so the lender will look to you and your credit report before agreeing to lend you any money. Before making an application, get to grips with either your credit report or your business’ credit report, to ensure that it is up to date and that there are no errors. Any errors will only make the whole application process much, much longer, while incomplete or missing information will also need to be updated before your application can be put through. At this stage, you should also check your credit score. Lenders often use the score as a guideline and if your score is particularly low, it’s unlikely that your loan application will get accepted. Equally, if you‘ve made numerous applications within the last few months that were rejected, it’s unlikely that the loan will be accepted. Be sensible with how you ask for credit, be sensible with your spending, keep spending on company credit cards to a minimum – less than 30% of the overall limit – and then make your application when your credit score has improved or once you’ve built up some credit. You’ll then be in a much stronger position and it’s more likely that your application will be accepted – if you follow the steps below.
Contact Lenders to See Which Documents You Need
The documents that you’ll need to make the loan application will differ massively from lender to lender, but generally, you’ll need proof of address – such as a bill to the address of your home or to the address of the business, proof of identity (which proof of identity depends on the lender), a loan proposal and a decent credit score. You should not have defaulted or been bankrupt within at least the last 12 months, you should be up to date on all bills both personal and business related and you should also have not missed a rent or mortgage payment within the last 12 months – again, either on your personal property or your business premises. You might also need to include past business tax returns, especially if you’re an established company. This will give any prospective lenders a good idea of how much money your company makes, although tax returns don’t display how much money you were able to write off – so some lenders might require that you supply them with three year’s worth of bank accounts or year-end statements showing profit and loss. Lenders want to know when you’re going to be able to pay the money back and so most of them will make sure that you’ll be able to pay the money back before they give you a penny.
Craft a Business Plan
Most of the time, you’ll need to craft a business plan in order for lenders to see exactly what you need the money for, why you need it, what you’re planning to do with it, how you think it will improve your business and when you’ll be able to pay the loan back. There are a few key things that you’ll need to include in the business plan, and these are:
- Exactly how much money you need and why
- What you’re planning to do with the money once you receive it
- How you think the money will improve your business as well as some projections for the next few years of the business – i.e., if you receive this money, how much money you think you’ll make because you’ve been given the money and how much money you think you’d make if the loan application was rejected. Emphasise how much you need the money because of what it could do for your business
- Use the last point to emphasise that you’ll be able to pay the loan back in a reasonable amount of time because you’ll make money due to having sufficient cash flow in your business
If you need to, get a professional to write out your business plan for you, especially if you’re new to business and if you’ve never written a business plan before. If your business is completely new and you cannot reasonably make projections for the cash flow, supply the lender with a study of your market and if you’re exploring a new niche, gather enough evidence to show that it is profitable.
Ask About the Small Business Administration’s Guarantee
If the lender rejects your loan, ask them about whether they could guarantee your loan underneath the small business administration’s guarantee. The SBA guarantees loans that the lender wouldn’t otherwise be able to afford to make, so if they’re worried about your risk level or whether or not you’re a good loan prospect, the SBA could help. There are a number of certain qualifying factors that you’ll need in order to be able to get a loan through the SBA but if you qualify, the loan will then be supplied through your financial lender. To learn more about the qualifying factors for an SBA loan, speak to your financial lender.