So, you’re ready to live your dreams of opening your own business, but you need help figuring out where to start. Or maybe you’re not sure if you’re ready to open a small business, but you’re open to advice to help you do so. Opening a business is a significant step for any person to take, but this is especially true if they don’t have their own cash to start up the company on their own. Typically, when people can’t afford to open a business on their own, they apply for a small business loan through a lending company. A small business loan, like any other loan, has specific requirements that must be completed before someone can be approved, especially if the business is minority-owned. If you’re planning on applying for small business loans for minorities, then you should prepare to complete the loan requirements ahead of time. If you’re ready to apply for a small business loan, or maybe you’re “just looking,” either way, keep reading to learn helpful tips to improve your odds of being approved.
1. Work on Your Credit Report
Lenders will undoubtedly pay attention to your credit report and your credit score. If you have a high credit score with zero negative marks on your credit report, you’re well on your way to getting approved for a small business loan. You can also use a credit score monitoring service like Hari Ravichandran’s Aura to keep track of your credit score. If your credit report could use a little work, then follow these simple steps to make your credit report desirable enough to get approval from lenders:
- Pay your credit card balances in a strategic manner
- Inquire about higher credit limits
- Pay your bills on time
- Dispute any errors on your credit report
- Handle your accounts that are in collections
- Apply for and use a secured credit card
- Make sure you get credit for your rent and utility payments
2. Gather Appropriate Information
According to Forbes, you must be prepared to the fullest extent if you want to be approved for a small business loan. Before you approach a lender with your application, make sure you have the following in order:
- The name of your business
- Your legal structure (are you an LLC or a corporation?)
- Your Federal Tax ID
- A list of your officers and their background information (your vice president or treasurer)
- Your financial statements for the past few years
- Projected financial statements
- The amount of money you are requesting from the lender (remember to only ask for what you need and not what you want)
- Your business credit report, if applicable
- Collateral (required for a secured business loan)
- Your detailed business plan
- Business bank statements, if applicable
Being able to show these documents to a lender will prove to them that you’re not only organized but also professional enough to deal with applying for a small business loan. You’re trying to impress the lender, so anything you can do to achieve that is recommended.
3. Improve Your Business Plan
Your business plan is what you will present to the lending agency to convince them to give you the small business loan that you’re asking for. Your business plan should be pretty impressive, so make sure you include the following in your business plan to make it shine brighter than the competition:
An Executive Summary
This is where you will lay down the pitch of your business plan. You want to include what your company does and how you plan on making money. You’ll also want to include why you believe customers will need or want to use your company and what you can do to appeal to them.
Lenders want to analyze the risk of approving you for a loan, so they want to know about the market opportunity in your local area, as well as the competition that may or may not be involved. In other words, the lender wants to know if there is room for your business in your area or if the site is too saturated with companies just like yours. After all, nobody wants three different shoe stores in a two-mile radius. They also want to ensure there is a healthy amount of competition, but not too much competition for your company.
Your Team and Business Model
A lender will ask questions about your team to approve you for a small business loan. They want to know about payroll and the costs of equipment. To protect their investment, they also want to know about the other teammates you have and what their backgrounds look like.
4. Shop Around
Getting approved for a loan that fits your needs can be tricky. This is why you must check out different lenders and iselect business loans to help make the application process go smoothly. If you have questions, shopping around is the best way to get answers from different lenders. Write down all of your questions or comments before calling anyone or speaking to anyone on the internet. You want to be prepared so you know exactly what you’re looking for before getting “face-to-face” with a lender.
5. Pay Attention to Hidden Fees
Many people tend to agree to the first loan they come across when they’re in a tight spot or eager to make moves. This can be one of the worst things you can do for yourself and your company because some lenders like to sneak in fees when they think borrowers aren’t paying attention. It’s imperative that you read every bit of small print, and if you have a hard time doing so, you should enlist your attorney’s help to ensure you know what you’re signing.
Applying for a small business loan can feel like a leap into the dark, but it’s not. The hardest part about applying for a business loan is ensuring that your business plan looks exceptional, and your credit report is precisely where it needs to be. If you have questions, you can always speak to your lender before applying for the small business loan. After all, it’s their job to help you by answering the questions that keep you from moving forward with the application.