The 6 Most Important Tips You Need to Know
Are you looking to secure finance to help you grow your business?
Many business owners have a hard time getting approved for a business loan. But with a little education and support, you can get the funding you need without the headaches.
There are things you can do to increase your chances of obtaining a loan, some of which you might not even have thought of.
Basically, you must prove lenders that you are capable of making the repayments as scheduled.
If you’re currently seeking financing opportunities for your small business, you might have already considered applying for a loan. However, what could you do to increase your odds to secure a small business loan?
Here are 6 useful tips to provide you with better chances of obtaining a business loan.
#1 – Make sure you prepare everything in advance
You won’t be ready to apply for a business loan the very moment after you make this decision.
Securing a business loan requires thorough preparation to improve your chances of success. Make sure you do everything in your power to set your company on the right track from the very beginning.
Swami Mukti of Mukti Freedom Yoga practised yoga in India for 10 years before moving back to Australia to teach. “I studied under the direct guidance of a renowned guru and while at the Bihār School of Yoga, I was able to author a book on Swara Yoga. I’ve been very fortunate to have this foundation in the practice and it has been crucial to the creation of my studio. Making sure your foundation is strong will help you secure the loan when the time is right.”
Aside from your industry expertise, there are two main things that lenders look at when it comes to loan applications: business profit and your personal finances. Start working towards:
- improving your credit score
- repaying your debts
- and organising your accounting records long before you apply for a business loan
Prepare yourself to showcase your plans for growth and to explain your financial history. The more you open yourself to lenders, the better chances that your business appears professional and solid.
#2 – Acknowledge your risk
The true reason why small businesses have a hard time at obtaining a loan is that lending money to them is riskier than lending it to large and reputable corporations. Here are a few of the factors that contribute to this risk increase:
✗ Low profit
✗ New business
✗ Poor credit score
✗ Not enough collateral
✗ Messy accounting records
According to the retail experts at Embrace, “new products are always a risk, but if you can prove that the potential of your business trumps the risks, then you can position yourself as an asset instead of a liability. This is only possible if you have a thorough understanding of the risk your business presents to lenders. It’s the only way you can build a solid defense once you’re negotiating your loan.”
By showing a good awareness of your level of risk, you’ll decrease the chances that lenders point out the weak spots of your business.
#3 – Save money before considering a loan
Getting a loan and not being able to make repayments is a situation you should avoid at all costs.
One of the best small business loan tips is to save money for loan payments. Consider opening a business savings account and start saving, in order to be able to manage your first repayments. Putting together a repayment plan will show how you will use the loan and earn money to repay it.
Pearl Toh, the creator of Peal’s Creations, spent years building profitability and saving money before setting up shop. “I started selling jewelry through markets and shops on consignment. It was only after I’ve built up enough capital through my profits that I was able to set up my own website and shop online.”
Many lenders want to know where repayments will come from before approving a small business for a loan. Non-cash collateral can be a good way to prove you can repay the loan.
Beware, though, you might lose some of your personal assets such as your car or even your home, should you fail to make repayments. Saving for repayments ahead of time protects you from using your personal assets as collateral.
#4 – Understand the different types of loans to choose the right one for your business
Always assess all of your available small business loan options.
The more you can learn about the different types of business loans, the more chances you have to get the right one for you. The best way to get a business loan is sometimes a matter of pursuing the right type of loan.
Long-term loans are larger sums you must pay back over very long periods of time with lower interest rates than short-term and term loans.
Have you measured the pros and cons of each loan type? Chat to an expert from Aussem to make better financial decisions.
Here are some additional factors to take into account:
- Business lines of credit are loans you won’t have to repay unless you use the money.
- Equipment financing is a loan aimed at purchasing new or used equipment.
- Alternative financing solutions include sources of funding that don’t come from the bank.
- Crowdfunding, cash advances and peer-to-peer loans are among the best examples of such financing solutions.
- Car loans can be quick and come with varying repayment options.
#5 – Build relationships
Getting a startup business loan as a new business can be extremely difficult. You are a risk to lenders, as you can’t prove that your business will be profitable.
Building relationships with lenders long before considering a loan may increase your chances to obtain this loan. Take advantage of everything banks may be willing to offer you, including credit cards and business bank accounts. The more you work with the bank, the more their employees will trust you.
#6 – Don’t rush into accepting the first offer that comes your way
There are multiple types of business loans. Check out the offers of multiple lenders to find the right one for you. Compare the terms and conditions of all these options to choose the best one.
Keep track of lenders who have granted loans to businesses like yours. Always do your research in relationship to your own industry, size and profile of the business. Apply to three or four lenders that best suit you.
Ready to secure the small business loan you need? Speak to the experts from Aussem and get the fast, experienced help you need.
Author Bio: Fiona White