Applying for a loan for your small home business may seem like a complex process, but it can be made easier with some help from an experienced small-business loans company. Here are three tips that will improve your chances of getting the business loan you need to take your small-business idea and turn it into a reality.
1. Create a business plan
A business plan is key to getting your small-business loan approved. If you have an existing or valid plan in place, this will be beneficial when applying for a business loan. Your small home business should have a well-developed and comprehensive strategic plan in place to ensure that it has long-term success. So having this in place will boost your chances of getting a business loan and boost the chances that the loan you get is manageable and can add long-term value to your business.
2. Improve Your Credit Score
Your credit score is an indicator of how good you are at managing money and paying off debts. So businesses owners need to have a good credit score to be eligible for a business loan. A bad credit score can mean that a business owner is ineligible for a loan or that the amount they will have access to is lower than it might otherwise need to be. Keep your mortgage payments up to date. This will ensure you have a good credit score, which is key to getting approved for a business loan.
3. Add a personal guarantee if necessary
A personal guarantee means that your business owners personally guarantee repayment of the business loan. So if the company fails to repay the loan, they will be responsible. This is often required with small-business loans but can also be used as a way to obtain better terms for your loan agreement. If you are added as a guarantor, then your credit score must be good. This will ensure that you can stand behind the loan if necessary.
4. Show that you have been in business for at least one year, preferably two or more years
It’s important to show that your small business is a viable and sustainable company, so having an operating history will improve your chances of getting a business loan. Businesses in the startup phase may not be able to get access to appropriate financing or may have to wait until they can prove their stability and solid financial footing. It’s also worth mentioning that being a small company can be advantageous to you as a business owner because lenders have the capacity and the willingness to offer loans to small businesses, which might not otherwise qualify.
5. Create a professional relationship with your lender
Creating a good working relationship with your loan officer is vital for securing financing for your small business. Your connection should be one built on trust and complete transparency, where you share all relevant information with your lender so that they can properly assess the risk involved in providing a loan to you.
It helps if you have a long-term bank account with your lender. Banks would consider their clients as a low-risk borrower if the client has been doing business with them for many years. Banks regularly offer their clients loans with better interest rates because of the existing professional relationship.
5. Provide as much detail as possible about the type of loan you are requesting
The lender you choose will want to know as much about your small business and the loan you are applying for so that they can assess your chances of success. Share information about your sales, current debts, and how much money you need from the business loan. A good lender should be able to give you input on what kind of terms and what type of repayment schedule would work best for your situation.
6. Include your net worth statement with any assets that will be used as collateral on the loan
If you have assets that will be used as collateral to secure a loan for your business, then you should include a net worth statement with your application. Your lender may also want a list of the assets that are included in your net worth calculation, so provide this information if asked.
The process of searching for a business loan can be challenging and time-consuming, but it’s important to give yourself enough time to research the different options available to you. Consider your short and long-term financial goals before starting your search to find the best possible financing option that suits both your needs and requirements. Make sure you apply for a loan that realistically fits into your business plan and then go above and beyond to secure a lender with which you can build a long-term working relationship.