Ensuring You Get That Loan
People who have no credit card debt aren’t the only ones getting approved for startup loans. After all, inherent in the name of the loan, you’re just starting your business. Obviously low credit card debt helps, but there are several factors taken into account when getting approved for a loan. Hopefully this can help. Illustrated below are 6 ways to help improve your chances of getting approved.
1 – Understand What You’re Doing
Every region differs when it comes to the regulations of the market. Make yourself familiar with the details of your area’s loan application process and related laws, governances, etc. Click here for a comprehensive checklist regarding startup loan application, compiled by the Small Business Administration.
2 – Prepare Accordingly
It’s an excellent first step to be sure you have all the paperwork and information required for the startup loan process. However, this gathering is useless without thorough preparation. There are 5 basic questions to ask when preparing for what’s next. As simple as they may seem, thorough preparation is key to ensuring that loan.
- Why do you need a loan?
- How are you paying it back?
- What needs to be purchased?
- What other debts/credits do you have?
- Who is on your staff?
Know exactly and confidently why you need the money, how you’re getting it back to the lender, what you’re buying with it, what other money you have going out or coming in, and who else is involved in your business plan.
3 – Boost Both Credit Scores
You may have heard of the “six Cs of credit”. You may know that there is a personal credit score as well as a business credit score. You may know how incredibly important these scores are when it comes to loan approval. There are no major differences between personal and business credit, other than the obvious. Let’s review.
- Character always matters in life. Establish a relationship with the lender, and let them see you’re a driven, timely individual. Credit history also counts as character in this setting.
- Capacity is essentially how much debt you can handle. If your net worth is high and you sell well, you will have a high capacity and will be more likely to be approved. Fear not, though, as a low capacity does not mean disproval. It only means you may not get as much as desired at first.
- Collateral is basically a backup way to repay the loan. Lenders usually prefer payback from profits of the business, but a backup plan to repay just in case the business is not profitable helps tremendously.
- Credibility may be the most important C of credit. Just look at the name. Non-financially speaking for a moment, you earn credit in life by being credible. The more people trust you, credibility grows. Be confident in your business plan and memorize the details.
- Contingency Plans are essentially panic-prevention plans. In worst case scenarios for your business, how will you either stay afloat or prevent disaster?
- Conditions are unchangeable. If the lender senses an economic depression coming, everyone’s chances of approval are lower.
4 – Experience
Any and all past experience in business is relevant. If you want to open a restaurant, it helps to have been on the wait staff a few years. If you want to open a zoo, it’s all the better if you’ve worked with animals. You get the gist. However, if you have no prior experience in the industry you want to enter, any management experience in general is a close second to industry experience.
5 – The Almighty Business Plan
To quote an article published by QuickBooks, “A business plan is a roadmap for how the business will fare…” There are many essentials to include in the plan, but beyond that, business plans differ from person to person and industry to industry. For specific detailed help creating a business plan, try this. Here’s a shortlist of absolute essentials to include:
- Projected Financial Statements
- Profit and Loss Charts
- Cash Flow Charts
- Balance Sheet
- Any Ownership/Management History
- Overview of Company
- Marketing Plan
6 – Find the Right Lender
Once you know your region’s requirements and have prepared accordingly, and once you understand the Cs of credit, how experience helps, and you have a solid business plan, it’s time to shop for a loan. Begin your loan process here, its quick and easy.
The bottom line is to keep your debt low, your income high, and to have a clear plan for how to make your business most profitable.
Chris Fuller went to the University of South Florida and has worked in the financial sector for over 20 years. He has extensive experience in all aspects of personal and small business lending, from personal loans, equipment finance to cash flow based solutions for small mom and pop businesses, and large corporations.