Things to Know Before Applying for First Time Business Loans
One of the biggest challenges for new business owners is the development of capital. Many first-time business owners choose to obtain the capital they need through small business loans, which can help cover cash flow, stock and many other small business essentials. Small business lenders however, don’t just give away money to any and everybody. Small business owners must prove themselves to be worthy of a loan and show that their business is investable. They want to be sure that they can collect on at least some part of the loan if the business goes under.
If you’re submitting a small business loan application for the first time you’ll need to take some time to prepare. Here’s a look at how to get started with a loan application and secure the capital needed from small business lenders:
It is important for lenders to know that you can pay back the business loan upon approval. It’s up to you to prove that you’ll have the profits necessary of making that happen. Answering the following questions in your business plan will show lenders that you’re dedicated to being successful in utilizing the small business loan.
What does your business do?
Give small business lenders a detailed understanding of what services and/or products you are offering to customers.
Who is your clientele?
If you own a tool supply store, you won’t be targeting moms with toddlers. Make sure the lenders are aware of this.
What’s your industry?
Each industry is different in terms of competitiveness and market availability. Your industry will help small business lenders determine if they will approve a loan.
How and when do you get paid?
Small business lenders don’t want to wait 20 years to recoup their loan. Make sure that you are receiving regular profits (if you are profitable) or revenue from sales before putting yourself in debt.
What are the margins?
Small business owners that are only profiting pennies on the dollar won’t likely be able to pack back a small business loan in a timely manner.
How have you previously managed credit?
Showing that you have a good history will go a long way in securing a small business loan.
What are you using this loan for?
Whether it is for the purchase of new inventory, adding staff or expansion, small business lenders want to be sure that you’re not asking for a small business loan without justifiable reasons.
Do you have a track record of success?
If you’re a first-time business owner, it may be hard to show that you are successful, but stable sales and a personal background that is highlighted by many accomplishments will demonstrate an investable owner to a small business lender.
Do you have any collateral?
The qualifications lenders now use are quite stringent. Banks want to lend, but they also need to be cautious. They’ll often ask for additional paperwork and many now require collateral.