You’ve probably heard the popular saying, “You need money to make money.”
Many small businesses would have found it difficult, if not impossible, to get off the ground without a loan in their early days — or even a supplemental loan as they continue to grow. After all, even great business ideas require capital to launch. According to Fundera, nearly three in 10 businesses go under due to insufficient funds.
Entrepreneurs can use the funds from a loan for many important purposes — like expanding marketing efforts, customer service strategies or product offerings.
Just like borrowers want to submit the strongest possible loan application ahead of buying a home or car, business owners want and need to do everything they can to optimize their loan applications so they have the greatest possible chance of receiving these crucial funds.
Here are some tips on preparing to apply for a small business loan.
Create an Airtight Loan Proposal
At the heart of your application will be a proposal meant to communicate to lenders exactly why you need this money.
According to the U.S. Small Business Administration, a thorough small business loan proposal will cover four major bases:
- How much money your company needs
- Your company’s proposed uses for those funds
- Your plan for repaying the loan in full
- What will happen if your company cannot repay the borrowed amount
Using these four major components as a guide, you can prepare a loan proposal that includes a summary of your business objectives, financial history and future plans. In particular, lenders want to know exactly how you plan to use the funds from a small business loan and how you are prepared to pay them back on time and in full.
Of course, this means lenders will expect to see a very detailed financial portfolio outlining revenue, cash flow statements and tax returns — usually for the business and for the entrepreneur submitting the application. A good rule of thumb to live by is to document anything and everything related to your personal and business finances; this will make it easier to submit a thorough application containing all the key numbers lenders expect to see.
Explore Small Business Loan Lenders
There are a variety of lenders that grant loans backed by the U.S. Small Business Administration. Each lender may have its own requirements for the application process. There are also a number of non-SBA loans out there worth exploring, too.
The key here is really identifying lending institutions suited to your company’s financial needs. For instance, some entrepreneurs with strong credit are able to qualify for unsecured loans — meaning they do not need to offer up any assets as collateral in case they default. Other entrepreneurs who are still building credit may find it easier to qualify for a secured business loan, which means they will need to offer up property as collateral in case they cannot pay the loan back. Getting a secured loan can help lower interest rates for borrowers who may otherwise find it difficult to get approved for loans or qualify for reasonable interest charges given their credit profile alone.
Taking the time to research lenders so you can submit applications to the best-fitting institutions for your needs will help you maximize your chances of success and avoid wasting time.
Doing this legwork to put together a strong loan application for your small business will help you improve your chances of approval. At the end of the day, choosing the right lender and covering all your bases on the proposal is key to securing the funds your business needs to thrive.
