For every entrepreneur, funding is one of the most difficult and stressful aspects of starting a business. Around 34% of all US businesses are funded by bank loans, with a further 20% being funded by other types of loans.
Even though a third of small businesses get started with less than $5000 in funding, securing even that much in loan funds can be a hugely arduous undertaking. That’s why knowing the insider tips and tricks of applying for loans as a business is crucial.
Knowing how to write a stellar application, find the right provider, and the ins-and-outs of talking to lenders is absolutely crucial if you want to secure the funds to make your dreams a reality.
Without further ado, here are the five golden rules for small businesses that are applying for loans.
1. Do Your Research Before Applying for Loans
Before you begin your business loan application, you will want to conduct thorough research to find the right lender.
You will want a lender that you know you have a good chance of success with, as well as one that offers terms that you can manage.
You’ll want to set aside several days for the task of researching small business lenders that you can apply to.
It’s important that you use trusted websites where you can read detailed reviews of the biggest lenders. This way, you can avoid making costly mistakes.
2. Get Your Documents in Order
No matter what types of loans you’re considering applying for, make no mistake that there will be a lot of paperwork involved.
You will need to prove to your lender that you’re trustworthy and stand a strong chance of being able to repay your loan in full. At a minimum, you will likely need to provide months of bank statements, account summaries, and financial reports.
You’ll need to provide legal documentation such as relevant licenses and your social security papers. You’ll also need to provide evidence of all relevant insurance policies you have. This will take time to gather, but being prepared ahead of time is well worth it.
3. Have a Compelling Growth Strategy
Applying for a small business loan is a process of persuasion. You will need to convince your lender that your business has what it takes to grow and succeed.
That’s why you will need a compelling pitch deck that sets out your growth strategy and earnings potential. Provide solid evidence from your market and sector.
Make sure that you tell an engaging and convincing story that sets out why you are worth the investment.
4. Ensure Every Penny is Fully Accounted For
Everyone knows that starting a business requires serious cash.
However, too many businesses make the mistake of setting out their spending plans in vague detail, with little consideration of where their loan money will actually go.
Do not do this. Show your potential lenders that you know what you’re talking about. Provide detailed analyses of how their money will be spent.
Make sure you can account for every single penny that you are applying for.
5. Assess and Anticipate Risk
Finally, you will need to consider how a potential lender will view you as a risk, and be ready to anticipate this in your application.
Having good business credit is a good way to achieve this, so do what you can to build credit if possible. Next, consider the weaknesses of your business, or anything that could be perceived as a weakness.
Use the right data and rhetoric to counter these potential arguments and show your lender why you have what it takes to succeed.
Learning the process of applying for loans is just one of the many personal life hacks that we can offer. Make sure to consult our Off-Topic section for expert life hacks and advice on finance, personal growth, and more.