This article outlines some of the things you should consider before applying for a business loan, SME finance or business finance.
Few things can give the satisfaction that comes with having your own business. It’s a culmination of all your efforts throughout the years, and it is what most hardworking employees dream of at some point in their careers. Yet, it’s also an extremely taxing responsibility, and it takes a lot of time, effort, and sacrifice to get there.
You will be faced with a myriad of challenges and roadblocks along your journey, but you should adapt and learn how to overcome each of them. One of the biggest problems that pretty much all businesses face at some point is money.
You’ll encounter financial straits, and they can be tricky to get out of. Most often, your best chance is to get a loan for your business, but there are some things that you must have before you can ask for that.
1. A clear goal
You can’t possibly apply for a loan for your business unless you know exactly what you’re going to do with that loan. Put yourself in the lender’s shoes. If a person comes asking for a loan to keep their company afloat, but they have no idea how exactly they’re going to do that, would you give them the money? Most probably you wouldn’t. Loans are always associated with a high risk factor, and if you want to get one, you’re going to have to convince the lender that you have a clear goal in mind.
For starters, don’t go and ask for a random amount of money. Be specific about how much you need, because that shows diligence and knowledge of your business needs. Then, more importantly, you need to demonstrate to the lender how exactly you’re going to spend that money, and what you have planned for it.
Why is that important? Because it brings us to the next point, which is how you will repay the loan. The lender wants their money back, and if you demonstrate a clear strategy on how you plan on using that loan, you’ll also be able to demonstrate how you will repay it. Last but not least, give them a contingency plan on what you’ll do if your business is unable to repay the loan, because they want to be 100% confident they’ll get their money back.
2. Good credit history
Bad credit history is one of the most frequent reasons why people might be denied loans. You’ll most probably be taking out a loan in your name, and if you don’t have a good credit history, you might face a hard time getting the money. This is why you have to work on improving your history before anything else, and you can do that by paying your bills, handling installments on time, and more importantly, checking credit reports to make sure there are no errors. If that doesn’t work, what happens next?
Fortunately, it’s not impossible for you to get a personal loan even with bad credit history. There are lenders out there who are willing to give you money despite your bad history, all you need to do is to research on how to get a loan when you have poor credit, because there are plenty of options out there, and you want to find the one that works best for you.
Chances are that with this kind of loan is the fact that it entails higher interest rates, but there are some pretty nifty offers out there. So, do a little digging until you find the best possible option you can go with.
3. Minimal applications
Since you need that money, and you’re out of choices, why not apply for dozens of loans at the same time? It might sound like a good idea, but it really isn’t. Credit bureaus take note of such things, and it will definitely cause problems with your loan process. Never apply for multiple loans at the same time, because it gives the impression that maybe you’re running a scam. Always try to keep minimal applications, and wait until you see what happens with each before applying for new ones.
4. The necessary paperwork
Nobody likes paperwork, and it’s always cumbersome to get into the process of compiling documents. But, unfortunately, it’s an integral part of any loan application process, and you need to be very diligent with this one. Whether you’re applying with a bank or a lender, you’re going to be asked to provide several financial and legal documents.
You can expect to need documents like personal income tax returns as well as the business one, licenses, commercial leases, your resume, income statements, and several others. It’s important that you prepare these papers well in advance, and keep them organized. If you fail to provide any of those documents and in an orderly fashion, it’s quite possible for your loan application to get rejected.
5. Expert help
It’s very important for lenders to see that you’ve consulted a financial advisor on the proper course of action before applying for a loan. Whether it’s your company accountant or your own personal financial advisor, the insight you get from those people can point you in the right direction, and it also shows lenders that you’re serious about this and you’ve taken necessary measures to ensure you’re going about it the right way. In any case, when you do get help, you’ll know the exact documents you need to prepare, where and how to look for lenders, and what you need to do to secure the loan.
You’re not the first person to need a business loan, and you won’t be the last, but you need to be thorough with it because a lot of applications get rejected for minor details that could’ve been easily handled if the applicant were more careful.
Remember to always research the lender before you do anything, because there are plenty of available options, and not all will work with what you need. For example, some lenders ask for collateral to back the loan, whether it’s assets, real estate, or anything that can be seized by the lender if you failed to pay. So, always do your homework and cover all your bases.
