A Comprehensive List of Things to Do Before Applying for a Business Loan

Small business loan application being pass

Acquiring business capital typically comes down to adequate preparation. You could have excellent revenues and high credit, but getting a business financing plan can be challenging without preparation.

Technology has made it easier for aspiring entrepreneurs to apply for a business loan. But that doesn’t necessarily mean that you can quickly get funding, especially if you are a beginner or a small business owner.

But there are many ways to boost your chances of getting approved for business financing. Read below to find out how.

Create a Business Plan

You can never convince a lender to give you a business loan if you do not have a business plan. Your business plan should include how you plan to manage the business, your goals for it, what you plan to sell, your intended target market, and everything that concerns your business.

Lenders can determine if you can run a business and pay them back through your plans. Often, they can find out if you have the skills and knowledge required to make a business successful, so your objectives should be impressive.

You need to show lenders your visions and a reliable business owner are worth investing in.

Prepare Your Financial Statements

Lenders need to see your past finances and your future financial plans. So you need to provide a financial plan that will project how much revenue you plan to get in the months and years to come. Doing this is vital to show lenders that you can make enough money to pay your loan back.

Similarly, they need to know your current cash flow, income, and balance statements for the past years to see how steady your finances are. If you have existing loans, such as car and real estate property loans, make sure that you pay on time, so they won’t make your finances look bad.

Be Clear About the Purpose and Amount of the Loan

Once you have completed your business plan and financial statements, it’s time to be clear about what you want to accomplish and how much money you need to borrow to reach your business goals. The key here is clearly stating your goals in writing and in-person to explain your plans to the lenders easily.

Be specific. Write down the equipment, machines, and tools you will buy with the money you borrow. If you use the money to renovate the workspace or your shop, state how much money you need for paint, materials, and labor costs. You need to defend your plans before the lenders, so be prepared.

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Check Your Personal Credit History

Lenders will also look into your finances. After all, you are the business owner, and they need to know how you manage your own money. They do this because they need to see if they are lending money to someone capable of handling it properly and financially responsible.

If you have a poor credit history, you may want to improve your credit scores first and settle your existing loans before applying for a new one. Lenders will also look into your bank accounts and tax accounts for the past year.

Prepare for Collateral

Some business loans will require you to submit collateral. In this case, you need to determine the worth of your collateral. Lenders will ask for this number to ensure that the collateral is tangible enough to secure the loan. However, you need to ensure that you will not default on the loan. Otherwise, you’ll lose your property.

Understand the Cost of The Loan

Apart from the loan amount and interest rates, you also need to find out the risks of the loan. Figure out how long it will take you to finish paying the loan and pay it on time according to your plans.

Collect all the information related to the loan, as you will need to include them on your financial statements. Study the terms and conditions of the lender before signing a contract. Keep in mind that lenders will add charges and fees if you can’t pay your loans on agreed schedules.

Know Your Options

Don’t just settle with one lender. There are so many lenders out there with different terms and conditions. Some of them may even work around your capacity to pay. Try to look for at least 3 or 4 lenders so you’ll have options. Identify which lender can give you the best rate and payment terms that won’t give you a hard time.

As you can see, there are a few things to consider before applying for a business loan. It’s not as easy as applying for a car or home loan, so adequate preparation is necessary.

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