Businesses in need of funding should be armed with the knowledge they need in order to make informed decisions about the loan that they will apply for. The loan application process is often overwhelming and complicated. Having deep knowledge and a strong understanding of the loan process can make the application easier and faster. Every business owner should start with these basic points before applying for any business loan.
Business Loan Types and Funds Use
Before going to the bank to apply for a loan, it is helpful to understand what type of loan you need. Create a list of what you need funding for and prioritize them as much as you can. Then, research available loan types and decide on the 2 or 3 that appear to be the best fit for your needs.
- Term Loan – A loan that is repaid in regular payments over a set period of time. Usually 1-3 years but can go up to 10 and even 30 years depending on the lender. These loans will likely have an fixed interest rate.
- Line of Credit – Like a credit card, a line of credit will allow businesses to spend the funds wherever it is they are needed most. These loans are repaid with set payments (usually monthly) and can have either a fixed or unfixed interest rate depending on the lender.
- CashFlow Loan – This type of loan will use your expected cashflow as collateral for the loan. The loan is repaid as funds are received.
- Invoice Factoring – The bank will use your invoices as collateral for this type of loan. As money is received, the bank will collect it for repayment.
Know What the Bank is Going to Look for
Lenders will want to ensure that they are providing funds to businesses that are willing to repay the loan. Even more than the willingness to repay, is the ability to repay the loan. First, you will need to show why you need a loan and what the funds will be used for. Whether you are trying to purchase equipment for your business or starting a new business, some form of proof of these needs is essential. If you are looking for funding for your start-up, you will have to have a business plan. Your business plan should include every detail, including competition, operating costs and even ideas for marketing and advertising. The more details that you include about your business, the better.
A strong credit history will ensure that you are approved for larger amounts and longer terms. However, businesses with little or no credit history are still eligible for funding based on personal finance records, credit scores, personal assets and bank account details. When starting a new business, it may be helpful to ensure that your partners have good credit history as well. Undesirable credit can often be overlooked with collateral. If you are going to be using collateral to secure a loan, remember that any default in payment could result in the bank taking possession of that property. It is recommended that you create a list of all of your company assets, their values and details about them. Pictures are also helpful here and the list can be used for insurance claims as well.
Bring it to the Bank
Here is a list of all of the things that you will need to bring along with you to the bank when applying for a loan. Use this as a checklist to ensure that you have all of the information at hand and that you go to your lender prepared.
- Business plan – Make sure it is detailed and professional. If you do not have one, or do not feel like your business plan is complete enough, you can often find services online that will help you create one that stands out among the competition.
- P&L Statements – Profit and Loss statements will show your lender how well your business operates, what kind of income your business is generating and how much of that income is being used for varying expenses.
- Personal resume – You will need to bring your personal resume and the resumes of any partners to your lender. They may not require them, but it is always good to show that you are organized, responsible and experienced enough to own and operate a business
- Proof of Need – Bring with you some form of proof that you need funding. What will you use the funding for? For example; if you are seeking funding to replace old equipment, it may be helpful to bring original purchase receipts and photographs of the outdated equipment.
Make it Easy
The most important thing to making the loan application process easier is to be prepared. Gather all of your financial documentation and present it in a organized fashion. Anything that you are unsure whether to bring, bring it, It is always better to be over-prepared than under-prepared.
Make a list of questions for your lender before you go to the appointment. This will save time after you meet with the lender and will give you a greater sense of security during the process. It is also helpful to research your questions online before bringing them to your loan broker. Many questions can be answered with a simple online search. This saves time and makes you more knowledgeable about the loan process.
Arrive early for your appointment with the loan broker. Not only does this show that you are competent and organized, it also shows that you are considerate to time constraints and deadlines.
Applying for a business loan does not have to be difficult. It will likely be time consuming and complicated, but if you arrive on time, prepared and armed with knowledge, your loan broker will surely notice. Not only will you be making an excellent first impression, you will feel more confident and it will surely show.