If you’re like most new businesses, you’re going to require borrowed funds for initial startup money, product development, and more. Understandably, you want to get approved for a new business loan quickly and with minimal hassle.
Unfortunately, some people walk down many paths before finally getting approved for a business loan. This can waste time and money, and it can also cause unnecessary stress. If you are preparing to apply for a business loan, these tips can help you to get approved more easily.
Create a Business Plan
Most lenders require you to provide a detailed business plan when you apply for a loan. A rookie mistake is preparing a business plan that’s brief and lacking in pertinent information. In this situation, the lender has little information to go on when making a lending decision. The lender may also assume that you have not put much thought into your business activities and future growth. You can see why this would be detrimental.
On the other hand, if your plan is detailed the lender will take you more seriously. These details includes information related to the competition, your target audience, your marketing plan, financial projections, and more. In addition, the lender has all the necessary information to see that your venture makes financial sense. Spend time preparing a business plan before you apply.
Evaluate What You Need For a Loan
As part of your business plan, evaluating the expenses on your plate and determining how much of that you can swallow yourself versus how much you would need a loan to cover. It might be tempting, but don’t take more than you need to start with. For small expenses, installment loans are a short-term solution; for a more long-term solution, try opening a business line of credit.
Think About Collateral
Some lenders may provide a startup or small business with an unsecured loan. Many will prefer that you pledge collateral. In some cases, this may be personal collateral rather than a business asset. Identify any potential collateral that you could pledge up-front. This helps so that you are prepared to offer it when or if it becomes necessary to do so.
Prepare to Sign a Personal Guarantee
Many people prefer to keep business and personal finances separate. However, many lenders require entrepreneurs to personally guarantee the loan. This essentially means that the lender can come after your personal assets if you default on the business loan. Some business loans require a full guaranty. Others only require a partial guaranty.
Be aware of what it may take to get approved for a business loan. By doing so, you can more easily find a lender that has lending requirements that you are comfortable with. You can also have documentation on-hand to provide to the lender as soon as it is requested.
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