It’s great that you have a brilliant business concept. But bringing it to reality will need more than just passion. You’ll need funds. While you might hunt for investors or borrow from family, securing a startup business loan is still a common choice.
But, before you don a suit and approach a lender, you need to learn how to increase your chances of loan approval. Here are five of the best tips and strategies for getting and securing a startup business loan.
1. Prepare To Prove Your Capacity To Repay
Your capacity to repay is the most crucial information for lenders to have. It might be tough to prove your capacity to repay or “service” a loan as a startup business owner. Yet, make sure your finances are in order and that your business plan includes detailed financial information. Be realistic, and don’t overestimate your objectives. Have evidence on hand if you’ve been in operation for a while and can verify that your earnings outweigh your expenses.
2. Have A Solid Business Plan In Place
A business strategy acts as a blueprint to help you go where you want to go. It outlines your business, establishes objectives, and describes how you intend to achieve them. As an individual, it provides a coherent vision and helps you manage your business. Financially, it gives lenders an idea of what your business is about and how you want to make money.
“Presenting a strategic business plan to lenders will help them gain a better understanding of your business’s long term security,” explains startup lending expert Shane Perry of Max Funding.
Perry further recommends double-checking your business plan to ensure it satisfies these three essential questions:
- Does my business plan include specific and quantifiable goals and objectives?
- What techniques do I use to achieve those goals and objectives, and do I articulate them?
- What does the competitive landscape look like?
3. Understand That Not Everything Is About The Business
Lenders do not base their decision on approving your loan in the business alone. Instead, they will determine your “global debt service,” or your capacity to repay both personal and business obligations. When the business owner already has a bad credit rating, the applicant’s co-maker becomes more crucial.
4. Ensure You Have All The Required Documents
Documentation such as personal and business tax documents, bank statements, evidence of individual and business insurance, business incorporation documents such as trademark registration documents, and any required business licenses should be brought with you when meeting with your lender. That way, you’ll guarantee ease of processing and give lenders an impression that you’re prepared, transparent and credible.
5. Be Ready To Discuss Numbers
Understand your existing cash flow as well as your projected revenue. If you have an income stream, your lender wants to hear about it and how you manage it. Prepare to talk about ongoing expenses such as lease, utilities, wages, technology, and supplies. Prepare to discuss ways to get through the slower seasons if your business operates seasonally.
If you’re a financial contributor, lenders will ask questions about that as well. Also, lenders would like to know if you, too, have a stake in the game. During the interview, lenders will ask how much capital you’ve already put in your business and the amount you’re willing to invest in the future.
Banks and other conventional lenders are risk-conservative that they’re generally hesitant to lend to startup businesses. Nevertheless, the chances of getting approved for business financing for your startup are increased if you implement the proven tips and strategies listed above. That is, of course, on top of a strong credit rating, a solid business strategy, and a track record of success.
Interesting Related Article: “Crucial Factors For A Successful Startup“