When you’re starting up a new small business, unless you have a massive amount of capital set aside - which is unlikely - you’re probably going to have to take out a small business loan. This is completely normal, and can help to smooth over any cash flow issues you might have in your starting period, and keep you covered during the time when you haven’t started bringing in profit yet. However, how should you go about applying for a small business loan? Have you ever considered improving your application, just in case it isn’t quite up to scratch and earns you a resounding ‘no’ from the bank? Well, if you do want to improve your chances of getting that often business-saving first loan, then read on for ten of the best tips on how to upgrade your small business loan application.
Since your small business loan is, in essence, a loan, your credit score rating will come into play. This is important for anyone who has a credit score lower than what they’d like it to be, since many banks and lenders will see this as a red flag and be likely to reject your application, despite your business ideas and any profit you may or may not have made. Before you apply for a small business loan, make sure you settle any debts that you have as best as you can, and tackle any issues which might be keeping your credit score low. Lenders don’t want to have to be chasing you down for money in the future, so making yourself seem like a safe and non-risky option is the best way to go.
An easy way to show a lender your existing work and explain what your business is all about is to have a pre-existing portfolio, and what better place to proudly display it in this modern age than the internet? Having a website up-and-running for lenders and banks to view is a brilliant idea, and, once your website is open to the world, it can actually take very little maintenance and effort to keep it that way - perfect for a small business with limited manpower. Using a pre-made theme can make your business seem legitimate and valid, so going with such a theme, like the Small Business theme from D5 Creation, can be an incredible way to boost belief in you and your small business. You can find both the Free and Paid versions of all Small Business friendly Themes from D5 Creation.
Whether you end up going to a bank or an alternative lender, you’re going to need to show them some straight-up documents which prove, among many other things, that you are who you say you are, an essential part of the trusting relationship between lender and lendee. Just a few typical documents which you might be asked for are proof of ownership (of the business), tax returns (both personal and for your business), a driver’s license and recent bank statements, among many others. You should note, however, that alternative lenders won’t need as many documents as banks or other financial institutions - they will still need the basics, just not a mountain of paperwork.
If you walk into your lender’s office and ask for funds for ‘working capital’, you may receive at best a few raised eyebrows and questions searching for further detail, and, at worst, advice to turn around and head out of the door. If lenders don’t believe that you’ve got the determination, drive and planning ability to make your business reach the heights which you have proposed, then they just won’t invest in you: it’s as simple as that. Make sure that you can explain where all of your money will be going, even if it’s currently as vague as ‘marketing’ and ‘hiring’. You don’t need all the precise details, just enough to convince a lender that you’re not going to run away with their money. Again, trust comes into play here; a lender needs to know that you’ve got plans to work with their money and create something amazing with it, or they won’t budge and you’ll be getting nothing out of their wallets, so to speak.
Walking into a bank and asking the lender ‘how much can I borrow from you?’ is a terrible idea, which will end with you getting no extra capital for your business. You need to be prepared and have an idea of what you will be asking for before you even wake up on the morning of the financial appointment. Have the figures worked out and written down - maybe even ask for some help from any more economically-minded members of your business - and make sure you can recall them as you wait for your appointment. Getting flustered is normal, and the lender will understand (you’re human, you’re allowed to get nervous while in high-strung situations) but showing up to the appointment with no real idea of what you want or how you’re going to use it is a huge ‘no’.
When writing out your application, make sure that everything you write down is one hundred percent accurate and the truth. Spelling? Check it, check again and then check one more time. Misspelling a company name or putting an accidental typo into an address can mean that your appointment with the lender never happens, due to them denying you for having an incomplete or error-filled application.
This is less focusing on banks and formal financial institutions, and more focusing on alternative lenders now, but those lenders will want to know everything about your business, from how it began to how it got to where it is today, and everything in-between. Alternative lenders are investing in you, your ideas and your business concepts, so they’ll need to know about where you started off and how you managed to get in front of them at that very moment in time. Spare a few needless details and anecdotes, but make sure that the big picture is overwhelmingly clear and easy to follow - if you tell the story of your business in a complicated way, then the lender may become confused, and confusion is never good when capital should be changing hands. At the end of an appointment, your lender should know nearly everything about you and your business, and be able to make their mind up based on that - they shouldn’t be confused into a denial or shocked and led into an exception.
Honesty is always the best policy: a tried and tested proverb, which is certainly true when it comes to small business loans. You should try to find a lender who is completely open and honest with you, about the amount of capital which they have to offer and whether you would be viable for their economic processes, but the same goes for your end as well. Don’t make up fantastic stories about your business if they’re not true - don’t fabricate figures while flustering in an appointment - admit when you don’t know something with a promise to find out and keep in touch. When you resolve to be open and honest with your lender, you will find them mirroring this behaviour, and it will, hopefully, lead to a progressive relationship between your business and its financial support, which can only help it in the future as it grows.