Business Loan Applications: 5 Steps to Success
If you’re a small business owner looking to raise some extra cash for expansion, the obvious step is to apply for a business loan. But with banks and other lenders still reluctant to part with their money, you need to be as prepared as possible before you ask for financial help. Here are 5 steps to maximize your chances of a successful application and securing the finance your business requires.
1/ Get Your Credit in Order
Your business and personal credit scores are among the most important factors determining a successful loan application, as this is a clear indication of how able you are to service your debts. You should order credit reports at least 6 months before any loan application and check for any errors that may impact negatively on you. If you have high balances with any credit card companies, seek to lower them before you apply for a loan. Personal credit ratings will matter more if you are a micro-business or have been running for less than 5 years.
2/ Draw up a List of Your Assets
A bank or lender will normally want to see all of your assets clearly listed. Your business assets will include not only your personal stake or shares in the company but also the company’s real estate, equipment and furniture. Your personal assets might include your own house and mortgage, as well as any trusts, pension or retirement plans you have allocated.
3/ Make a Sound Business Plan
Preparing a strong business plan will show any potential lender that you are requesting a loan based on firm calculations. A good business plan should include your businesses’ current income and expenditure, including cash flow details and monthly balance sheets. You should also spell out exactly how much you are seeking to borrow, how long a term you require for repayment and how you are planning to use the money. Consider the ways you will use the loan to maximise business growth so that you can respond confidently to any queries or reservations on the part of the lender.
4/ Get a Professional to Check Your Application
However strong your loan application, it can probably be improved by seeking outside advice. If you have a trusted business mentor, ask them to run through the details with you – they’re likely to spot something that needs revising or suggest a new angle that hadn’t occurred to you. A good lawyer or accountant can also fulfill this role.
5/ Identify the Most Suitable Lender
While the majority of small business owners still look to traditional banks for business loans, their requirements may be higher than other lending institutions. Explore all available options and check lending criteria carefully beforehand to avoid disappointment.
As these 5 steps show, the key to a successful bank loan application is preparation. Understanding not only what you want from a lender but what they require from you will greatly increase your chances of success.
Author: Melanie is a business finance writer for Capiota, a business finance provider in the UK