Whether you are the first time you apply, or are an experienced loan applicant, the very thing about applying for a loan can be daunting. However, sufficient preparation can make the process much easier. Here are eleven suggestions on things to do before you visit the bank or apply for a loan:
1. Define the reason for your loan application
Why does your business need a loan? It may seem like a simple question, but knowing how to respond briefly is the most important part of applying for a loan. Lenders will want to know exactly why you are considering borrowing money, how much you need, and how the loan will affect your business.
Loans for “general improvements” will not be approved; Your lender wants to see that you have spent time thinking carefully about what aspect of your business you want to invest in and how this investment will pay off. Generally, loans for improvements that are material, will retain their value, and which can be withdrawn, if necessary, with the greatest likelihood of being approved, while loans for debt consolidation, pay, or the purchase of a non-material asset will likely be denied.
2. Calculate costs
While focusing on the long-term benefits of your loan, it can be tempting not to overlook the daily, weekly or monthly payments you are expected to make. You want to find a loan that will both give you access to the funds you need and that you will realistically be able to pay off.
A company that has $ 300,000 per year in total sales will simply not be approved for a loan of $ 1,000,000, unless you have a security that is valued well above the loan amount. Remember that all the financial benefits that your business can see as a result of the loan will take time to show off, so it’s important to find a loan with payments that you can afford right now.
3. Do your research
Don’t settle for just going to the first big bank, and assume they will have the best deal. There are many factors involved in the actual cost of a loan (interest rate, length of loan, monthly payments, etc.) and it is important to calculate the cost of each lender.
Don’t forget about fast-loan, micro-lender credit companies, because if you need to borrow money with a note right now, these options are more suited to your needs, and talk to entrepreneurs in your area about their experience. Whatever you do, don’t add a lot of business all at once, inquiries show up on your credit report, and lots of inquiries over a short period of time will indicate desperation to potential lenders and can even negatively impact your credit rating.
4. Check your business licenses
Make sure you are up-to-date on all state, municipal and other necessary business licenses. Every lender you talk to will check these before they check you up, and you don’t want to be bothered to take care of simple responsibility for your business.
5. Keep your partners informed
If you do not own more than 75% of your business, you will need to involve your partner in the application process. Make sure everyone is on the same page about the need for a loan and amount. Your lender will want all entrepreneurs involved, and your partner should be prepared to provide additional personal documentation if needed.
6. Keep track of your credit score
Count on lenders to check both your company’s credit rating and your own. It is very difficult to improve a low grade, but you can always do some cleaning up before applying. Credit reports are sometimes wrong, and you want to capture these before you begin the application process to give the reporting companies time to fix your score.
7. Have a business plan
Business plans are often the first lenders look at when considering your application; a poorly crafted business plan may be the first and last thing they look at. It is incredibly important to make a good first impression with your potential lenders, and you want to appear competent and knowledgeable about your business. Your lender will take you more seriously if you show up with your business plan on time. Good business plans will be extensive and will require a lot of work, but taking the time to carefully develop your plan can easily be the difference between quickly rejecting or following up your application.
8. Make sure your address is correct online
Do you own a new building, or have you recently changed location? Double check that your new address is on your website and your social media accounts. Your lender will probably run a quick search on the Internet at the location or address you provided, and you won’t want to put your application down so deceptively, because, according to Google Maps, it is still an abandoned building or premises.
9. Understand what is your safety
Many — but not all — lenders will require some form of security before agreeing to lend to you. While there are many things you can list as collateral, lenders can generally prefer specific options such as property or equipment that can be sold if needed. If you choose a loan that does not require collateral, go through the assessment in advance to get a proper idea of the value of your options.
Your lender will want to see some type of fresh documentation stating that the item (s) you are using as collateral are actually worth what you say it is. Don’t forget that this is something you can give up if you don’t pay off your loan; check if the potential benefits outweigh some risks?
10. Develop documentation to verify your company’s history
Your lender will want to see current bank statements, credit card statements and statements and may also require additional documentation to verify that your business has existed the way you say it has. Collect this information before you apply! Your lender will expect you to be well prepared when you apply for your loan, and it will reflect negatively if you are not.