How To Get a Business Loan, Made Simple
While it is not as easy as it once was, qualifying for a business loan is easier when you’re prepared. The key is to know how to do it and get the best terms. Here is a simple 4 step process:
Step 1: Start Before You Need the Money. Let potential lenders get to know your company before asking for anything. Remember, people do business with those they like and trust. Same goes for lenders.
Step 2: What Do You Need a Loan For and How Much? Good reasons include financing a piece of equipment, real estate, long term software development or large seasonal sales swings.. Bad reasons include financing ongoing losses, office space expansions, or acquiring non-essential business assets.
As for how much, create a budget for where the money will go and support it with financial projections. This shows confidence and that the research was done.
Step 3: Know the score. Lenders still look at personal credit scores as a way to judge whether they’ll get paid on their money. When meeting with a lender, ask how they measure risk and how your scores compare to those expectations.
Credit score: A credit score of above 650-700 is considered acceptable, but does not guarantee a loan.
Debt to income: How much you bring in vs how much you have in payments. Personal debt payments should not be more than 33% of gross monthly income.
Time in business: If you’ve been in business over 2 years and have a reliable record of incoming accounts receivables, your chances of getting an unsecured working capital loan are good.
Step 4: Gather Financial & Legal Documents. This “Loan Package” is the paperwork you’ll submit with your loan application. Typically includes:
A business plan including business owners’ resumes.
Financial results and projections (Profit & Loss, Balance Sheet and Cash Flow Statements).
Personal financial information including three years of tax returns.
Remember, these days, social media can be a way for lenders to get an inside look at you or your company. Use social media networks in a smart and professional way. Leverage it as a tool.