How to Get a Small Business LoanLindsay Chambers
Striking out on your own and starting a small business is exciting, but it can also be intimidating – especially when you need capital and aren’t sure how to obtain it. A small business loan can help you finance your dream of entrepreneurship and offset the costs associated with things like purchasing supplies and hiring staff, allowing you to achieve more. Here are three steps to get a small business loan.
1. Be Strategic
Applying for a loan shouldn’t involve any guesswork or ballpark figures. Before giving you money, lenders will want assurance that your business is a sound investment. You need to prove that you’ve done your research and are serious about entrepreneurship. Some banks won’t approve you for a small business loan unless you provide a detailed, written plan that includes operational specifics and financial projections. If you’ve never created a business plan, you can ask an experienced mentor for advice.
2. Determine If You Qualify
Lenders will weigh various factors to assess your ability to repay the loan.
- Credit score: If you have established a consistent track record of paying your bills on time, lenders will be more likely to give you favorable terms. Borrowers with poor credit are chancier, so available loans will probably be costlier.
- Length of time in business: If you’ve already kept your small business afloat for two or more years, that’s a mark in your favor.
- Annual revenue: Banks and other lenders will want to know how much profit you’re bringing in and how you are managing it. The more money your business makes, the less of a loan risk it will represent.
- Collateral: Business loans fall into two categories: secured and unsecured. Secured loans require collateral – such as property or equipment – that the lender can seize if you default. Putting up collateral is risky, but it can get you more financing at a lower interest rate.
3. Compare Your Financing Options
While banks tend to offer the lowest APRs, you might have trouble getting bankers to approve your application if you have inconsistent revenue, fewer than two years of experience, poor credit or no collateral. An online lender or microlender could be a better option when a traditional bank loan isn’t available for you. These lenders rarely have interest rates as competitive as what banks can offer, but they’re more likely to accept you, and you may get your money sooner.
Depending on which expenses you must cover and how much capital you need, you might also want to consider opening a credit card or line of credit instead of or in addition to your small business loan.
Your Partners in Business Success
You have the inspiration and ability to start a business, but scaling your company requires a different skill set. At Clear View Business Solutions, we collaborate with entrepreneurs and other self-employed people to identify potential financing sources and other growth opportunities. Let our expert advisory consultants help you develop your budget and revenue forecast for a loan package that will be attractive to more lenders. To learn more about our small business bookkeeping, tax and financial services in Tucson, reach out to us today.