If there's one thing that all small business owners are aware of, it's the fact that running a company costs money. When you're not paying for services or marketing, chances are you're managing your fixed costs or purchasing office space. And if you ever need to upgrade or buy new equipment, your expenses may continue to pile up from there.
Taking out a loan for your business can be an ideal option for situations where cashflow stops you from getting off the ground, financing between clients, or taking your company to the next level.
When your business's financial future is potentially at stake, you don't want to leave anything to chance. That's why we've put together a 5 point checklist that will tell you exactly what you need to get approved for a small business loan.
1. An Evaluation of Your Company's Needs
A successful small business loan application starts with doing a needs assessment for your company. Because you are taking on a financial commitment at the end of the day, it's important that you fully understand what the funds need to accomplish for the loan transaction to be considered a success.
What you find during your assessment might surprise you.
Is it possible to complete the project with less money? Are some of your projects eligible for grants? Could those new client accounts be worth more than you expected?
When you have a solid grasp of the company's goals and its current financial footing, it puts you in a better position to apply for your loan going forward.
2. A List of Loan Sources That Makes Sense For You
Many business owners see the bank as the be-all and end-all of anything loan-related, but your local branch isn't your only source for borrowing money. And in fact, depending on details like your company history or your credit score, securing a small business loan with reasonable interest may not even be possible.
A few other potential loan sources could be:
- Credit unions
- Community-based organizations
- Angel investors
- Friends and family
- Peer-to-Peer lending
To be clear, exploring your loan options doesn't necessarily have to be a lengthy and time-intensive process. With a quick search, you can find quite a few companies online that offer free loan comparisons. .
3. Someone Internally Responsible For The Application Process
There are so many tasks demanding your time and attention that it's easy for things to fall through the cracks. That's why having a point person in charge of the end-to-end process can simplify your small business loan application while reducing the risk of missing a deadline or an important email.
To be clear, this doesn't mean that the point person receives no help or that one person is being left to drown in the paperwork. It just means that you have a designated person who's supposed to stay on top of things.
And in the event that the person in charge of the loan process is you, this is where a spreadsheet and a calendar can go a long way.
4. The Documentation You Need For Your Loan
Whether you're applying for a traditional loan or seeking funds through alternative sources, lenders will still want reassurance that you can afford to pay them back.
Documents your bank will be interested in seeing may include:
- Proof of business assets
- Income statements
- Financial statements
- Deposit slips
- Incorporation documents
Not all lenders may require all of that information. But it's better to be over-prepared and ready to produce than scrambling and making frantic last-minute calls when you're already at the bank.
5. A Thoughtful Presentation
At every moment of the interview and due diligence process, lenders are going to have a question in the back of their minds:
"Will you be able to pay back the loan?"
Chances are, your lender is not going to be an expert on your industry in the same way that you are. When you apply for your small business loan, be prepared to go in-depth. If you can explain what the immediate and long-term forecast looks like for your sector, articulate your goals, and explain how repaying the bank is feasible for you, it may give your lender more confidence in your company's financial viability both now and in the future.
The COVID-19 pandemic has forced businesses across industries to find new ways to finance their costs. However, a small business loan isn't just a last resort application to make during challenging economic times. It's a legitimate way to fund your business projects and goals. We know that the process can be stressful, but remember that there are many loan information sources online and professionals around to help you. Although lenders will still do their due diligence, there's nothing wrong with coming to the table prepared. After all, successful small business loan applications ultimately come down to a combination of being well-organized and prepared.